Reference no: EM133043002

QUESTION - Your firm is considering to raise capital using either one OR all of the following options:

Option A: Issuing 10,000,000 new ordinary shares at a price of RM2.50, and investors are expecting a dividend of RMOAO per year, with growth of 2% per year. Flotation cost is estimated at 1% of the issue price.

Option B: Issuing 5,000,000 new preference shares at a price of RM4.00 per share, and yearly dividends of RMO.30 per year. Flotation cost is at RM100,000.

Option C: Issuing 8,000 bonds with face value of RM1,000 per bond at a price of RM980. It is a 6% bond that matures in 9 years. There is no flotation cost for this option. Current Malaysian corporate tax rate is 24%.

Required -

a) Calculate the cost of capital for each option.

b) Calculate the weighted average cost of capital (WACC) based on the market vaiues as at the issuance price.

c) Discuss the implications of your calculations in (b) and (c).