Calculate the weighted average cost of capital

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Question - Bintang Industry is seeking your financial advice to determine the firm's cost of capital. The following data are given to you:

20 years bond with 12 percent coupon was issued 10 years ago and is currently selling at RM1,153. The firm's tax bracket is 40 percent and its floatation cost is 20 percent of par value. Par value is RM1,000.

The current price of its preferred share is RM1.30 issued with a dividend of 10 percent of par value of RM1. Floatation cost is 10 percent of its current price.

Bintang's stock is currently selling at RM5 per share. The expected dividend for next year is RM0.44 and it is expected to grow at a constant rate of 5 percent.

i. Calculate the after-tax cost of its: Debt, Preferred Share and Equity.

ii. Calculate the weighted average cost of capital (WACC) if the ratio is as follows: Debt 30 percent. Preferred share 20 percent. Equity 50 percent.

Reference no: EM132607471

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