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Calculate the cost of new common stock

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Question - ABC Berhad has asked you, the financial manager to measure each specific form of capital. The company's tax rate is 30%.

Debt: Company sells RM750, a 10-year, RM1,000 par value bond that pays a 12% coupon rate annually. Flotation cost is RM20 of the par value and the bond is sold at discount of RM20 per bond.

Preferred Stock: 6% preferred stock with par value of RM100 is sold at RM90 per share. In addition, the company has to pay an underwriting fee of RM4 per share.

Common stock: The current market value of the common stock is RM60 per share. Next year dividend after incorporating the growth rate is RM2.00. The dividend is expected to grow at a constant rate of 5% per annum.

If the company decides to issue new common equity, then the company must pay the underpriced cost of RM5 per share and flotation cost of RM3 per share.

Required - Based on the information above, calculate:

(a) Calculate the before-tax cost of debt?

(b) Calculate the after-tax cost of debt?

(c) Calculate the cost of preferred stock?

(d) Calculate the cost of common stock?

(e) Calculate the cost of new common stock?

Reference no: EM133098498

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