Ruby's Corporation needs to raise up its capital to RM80 million to expand its business. It plans to issue 20 million shares with a market value of RM2.50 per share, and the remaining of 30 million will be a debt financing through bonds. The par value and market value of each bond is RM1,000. The bonds pay annual interest before tax of 6.7%. The equity beta of firm is 1.5. The yield on risk free investment is 3% per year and the equity risk premium is approximately at 12% per year. The firm pays taxation at the annual rate 30%. From the above information, you are required to calculate: i. the after -tax cost of debt. ii. the cost of firm's equity. i. the weighted average cost of capital based on your answers in part (i) and (ii).

Ruby's Corporation needs to raise up its capital to RM80 million to expand its business. It plans to issue 20 million shares with a market value of RM2.50 per share, and the remaining of 30 million will be a debt financing through bonds. The par value and market value of each bond is RM1,000. The bonds pay annual interest before tax of 6.7%. The equity beta of firm is 1.5. The yield on risk free investment is 3% per year and the equity risk premium is approximately at 12% per year. The firm pays taxation at the annual rate 30%. From the above information, you are required to calculate: i. the after -tax cost of debt. ii. the cost of firm's equity. i. the weighted average cost of capital based on your answers in part (i) and (ii).

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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