Xpert Berhad is measuring its overall cost of capital. The firm is in the 30% tax bracket. Current information with regard to the choices of financing.

i. The firm can raise capital by selling RM1,000 par value bond, 10% coupon interest rate with 12 years bonds maturity period paying annual interest to potential bondholders. The bond will be selling at a discount of 10% of its par value. The firm will be paying floatation cost of RM80 per bond.

(8 marks)

ii. The firm plans to issue preferred stock with a par value of RM100 and will be paying 10% annual dividends. The selling price of the preferred stock is expected to be RM80 with a floatation fee of RM8 per share.

(4 marks)

iii. The firms ordinary share market price is currently RM40 per share. The firm expects to pay rm5 dividends in the coming year. The firms dividends have been growing at an annual rate of 10%, and this rate is expected to continue in the future. Floatation costs are expected to be RM5 per share.

(6 marks)

iv. Determine and justify which alternative should BA Bhd choose.

(2 marks)