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The following is the capital structure of Saras Ltd. as on 31-12-2020: The market price of the company's share is RM110 and it is expected
The following is the capital structure of Saras Ltd. as on 31-12-2020: The market price of the company's share is RM110 and it is expected that a dividend of RM10 per share would be declared after 1 year. The dividend growth rate is 6%. (i) If the company is in the 50% tax bracket, compute the weighted average cost of capital. (ii) Assuming that in order to finance an expansion plan, the company intends to borrow a fund of RM2,000,000 bearing 14% rate of interest, what will be the company's revised weighted average cost of capital? This financing decision is expected to increase dividend from RM10 to RM12 per share. However, the market price of equity share is expected to decline from RM110 to RM105 per share. (iii) Do you think the company to finance the expansion plan via an additional borrowing of RM2,000,000 a right move? Why
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