Determine the best source of financing

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ABC Corporation requires additional RM8 million in building new laboratories for their research and development activities. Below are the alternatives of financing.

Bond

Issue bond at 5% discount with 10% coupon rate. The bond will mature in 12 years. The cost of underwriting is 8% market price. The tax rate for the company is 24%.

Preferred Stock

Sell Preferred stock at RM90.00 with 8% dividend. The issuing cost is 5% of par value.

Common Stock

Issue common stock at RM35.00 per share with 6% floatation cost. The shareholders were paid Rm0.60 of dividend recently and the dividend is expected to grow at 8& annually

Based on the above,

Question 1: Calculate cost of each financing

Question 2: Determine the best source of financing and justify your answer

Reference no: EM132585493

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