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Calculate the initial cost of the project

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Reference no: EM133002532

Question - a) Nervousis Systems has 250,000 shares of common stock outstanding at a market price of RM35 a share. Last month, the company paid an annual dividend in the amount of RM1.7 per share. The dividend growth rate is 4 percent. The company also has 6,000 bonds outstanding with a face value of RM1,000 per bond. The bonds carry a 7 percent coupon, pay interest semi-annually, and mature in 6 years. The bonds are selling at RM990. The company's tax rate is 25%. Calculate the Nervousis Systems's weighted average cost of capital?

b) The Carnation Daily has a debt-equity ratio of 0.58. The firm is analyzing a new project that requires an initial cash outlay of RM300,000 for equipment. The flotation cost is 9 percent for equity and 4.4 percent for debt. Calculate the initial cost of the project including the flotation costs.

c) Discuss implications of the static theory of capital structure on the following issue:

i. Taxes

ii. Financial Distress

d) As finance manager in public listed firm, discuss three implications of the Pecking-Order Theory in making capital structure decision.

Reference no: EM133002532

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