The management of TopCan Berhad has appointed JimatBanyak Bank (JBB) to determine its cost of capital due to the purchase of additional machines and production systems on producing Personal Protection Equipment for the domestic and international market. The financial experts from JBB have recommended to issues a mixture of series financial tools on raising the capital needed base on the current capital structure. They have recommended the following options:

TopCan can raise its capital by recall the bonds issued 5 years ago by selling a new 20 years, RM1,000 par-value, 6 percent annual coupon interest rate bonds that pay quarterly. JBB will charge 5 percent of the floatation cost on the selling price of RM990.

TopCan can issue a 5 percent annual dividend rate, RM100 par value, the preferred stock that price at RM110. TopCan has to pay RM4 of floatation cost for each of the preferred stock issued.

TopCan common stock is traded at RM5.60 in Bursa Malaysia. The management had declared a dividend pay-out of RM0.20 per share recently. Due to the production in PPE, the company forecast the dividends will grow at a constant rate of 6 percent in the future. The floatation cost per share for the new issue of common stock will be RM0.10.

The Companys balance sheet consists of Long-term liabilities of RM350,000, Common stock of RM550,000, and preferred stock of RM100,000.

The firm has a balance of RM150,000 retained earnings. The company will utilize its internal funds for any investment in the future once the retained earnings are exhausted, the firm will issue new common stock. All companies in Malaysia are required to pay 25 percent of corporate tax. You are required to:

1. Determine the after-tax cost of issuing new bonds. (3 marks)
2. Calculate the cost for issuing new preferred stock. (2 marks)
3. Estimate the cost of issuing new common stock. (3 marks)
4. Based on the answers in (a) to (c), measure the weighted cost of capital by issuing new financial tools. (4 marks)
5. Measure the weighted cost of capital if the management has sufficient internal funds. (4 marks)