Pearl white berhad is considering Project with following cost and rate of return: Cost (RM) 3,000 5,000 Project 1 2 3 4 Long term debt: 3,000 2,000 Pearl White estimate that is it can issue bonds that have a maturity period of 10 years with a face value of RM1,000. The coupon rate for the bonds is 10% and is sold at the price of RM950. The corporate tax is 30%. Preference Shares: The company can issue preference shares that pays a constant dividend of RM5.00 per year at RM49.00 per share. Ordinary Shares: Currently, the ordinary shares of the company sell for RM36.00 per share. The next expected dividend is RM3.50 and the dividend is expected to grow at a constant rate of 6% per year. Source of capital Long term-term debt Expected Rate of return 16.00% 15.00% 13.75% 12.50% A firm has determined its optimal capital structure which is composed of the following sources and percentage of financing. Preferred stock Common stock equity Percentage of financing 15% 10% 75% COMPUTE: i) Using the approximation method, compute the firm's after-tax cost of debt. ii) Compute the firm's cost of preferred share iii) Compute the firm weighted average cost of capital (WACC) iv) Compute the firm of common share

Pearl white berhad is considering Project with following cost and rate of return: Cost (RM) 3,000 5,000 Project 1 2 3 4 Long term debt: 3,000 2,000 Pearl White estimate that is it can issue bonds that have a maturity period of 10 years with a face value of RM1,000. The coupon rate for the bonds is 10% and is sold at the price of RM950. The corporate tax is 30%. Preference Shares: The company can issue preference shares that pays a constant dividend of RM5.00 per year at RM49.00 per share. Ordinary Shares: Currently, the ordinary shares of the company sell for RM36.00 per share. The next expected dividend is RM3.50 and the dividend is expected to grow at a constant rate of 6% per year. Source of capital Long term-term debt Expected Rate of return 16.00% 15.00% 13.75% 12.50% A firm has determined its optimal capital structure which is composed of the following sources and percentage of financing. Preferred stock Common stock equity Percentage of financing 15% 10% 75% COMPUTE: i) Using the approximation method, compute the firm's after-tax cost of debt. ii) Compute the firm's cost of preferred share iii) Compute the firm weighted average cost of capital (WACC) iv) Compute the firm of common share

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 23P

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