Calculate the cost for each of the capital resources

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Reference no: EM132555647

Maju Company is determining the optimal capital structure based on the information below:

The company can issue bonds that have a maturity period of 20 years with a face value of RM1,000. The coupon rate for the bonds is 9% and is sold at the price of RM980. The cost of issuing the bonds is 2% from the face value of the bonds.

Preference Shares:

The company found that it can issue preference shares at the price of RM6.50 per share with the annual dividend payment of RM0.80. The cost involved in issuing and selling shares is RM0.30 per share.

Ordinary Shares:

The ordinary shares of the company are sold at the present price of RM4 per share. The dividend that is expected to be paid at the end of next year is RM0.50. The growth rate of dividends is constant, that is at 8% every year. The company must pay the floatation cost of RM0.10 per share.
Corporate tax is 40%.

Question (a) Calculate the cost for each of the capital resources.

Question (b) Calculate the weighted average cost of capital

Reference no: EM132555647

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