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Calculate the company market value capital structure

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Mustang Corporation Bhd. has 8 million common stocks outstanding, 0.5 million of 6% preferred stocks outstanding at par value RM100 each, and 100,000 bonds paying 9% coupon semi-annually and will mature in 20 years. The current market price of the bond is RM910. The preferred stock currently sells for RM67 per share. The company's common stock is selling for RM32 per share. The company has announced the dividend expected to be paid is RM4.29. The company is expected to grow at a rate of 8.02% indefinitely, and the company's tax rate is 35%.

a) Calculate the company's market value capital structure and the weight of the sources of capital.

b) Calculate cost of common equity.

c) Calculate after tax cost of debt (Use trial and error method).

d) Calculate cost of preferred stock.

e) Calculate Mustang Corporation Bhd. weighted average cost of capital (WACC).

f) After you have calculated (a) and (b) above, you are informed that the flotation cost for new equity is 15%, and the flotation cost for preferred stock is 10%. At the same time, the company's common stock price suddenly dropped to RM25 per share. Calculate the company's new WACC.

g) Briefly discuss the importance of cost of capital and how it relates to required rate of return of the firm.

Reference no: EM132788293

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