Answer Happy

QUESTION 4 a) Bestari Shipping Co. has to raise RM2 million for expansion and has the following financing alternatives. Calculate the cost of each alternative if the company is in a 40 percent tax bracket. Debt: Issue a 12 year, 15 percent bond at RM950 which has a floatation cost of 5 percent of its par value. (4 marks) Preferred Share: Issue a 6.5 percent RM100 par value of preferred share. The cost of issuing these stocks is estimated at 8 percent of selling price of RM90. (3 marks) Common Stock: The firm's common stock is selling at RM60. The floatation cost is 3 percent of selling price. At present, the company's growth rate is 5 percent and the latest dividend paid was RM 0.90. (3 marks) Determine the best source based on the calculation above. Justify your answer. (2 marks)