Answer Happy

(c) A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions. Source of Capital Target Market Proportions Long Term Debt 25% Preferred Stock 15% Common Stock Total Fimm Value 100% 60% Debt: The firm can sell a 10-year, RM1,000 par value, 6% bond for RM945. Preferred Stock: The firm has determined it can issue preferred stock at RM70 per share par value. The stock will pay a RM8 annual dividend. Common Stock: A fim's common stock is currently selling for RM19 per share. BBF304/03 The dividend expected to be paid at the end of the coming year is RM1.85. Its dividend payments have been growing at a constant rate for the last four years. Four years ago, the dividend was RM1.50. Additionally, the fim's marginal tax rate is 35%. Determine the weighted average cost of capital for the firm. (15 marks)