Naga Emas Berhad is determining the optimal capital structure based on the information below: Long term debt: The compan
Posted: Sun Apr 17, 2022 6:20 pm
- Naga Emas Berhad Is Determining The Optimal Capital Structure Based On The Information Below Long Term Debt The Compan 1 (64.67 KiB) Viewed 26 times
- Naga Emas Berhad Is Determining The Optimal Capital Structure Based On The Information Below Long Term Debt The Compan 2 (73.63 KiB) Viewed 26 times
Naga Emas Berhad is determining the optimal capital structure based on the information below: Long term debt: The company can issue bonds that have a maturity period of 20 years with a face value of RM1,000. The coupon rate for the bonds is 9.5% and is sold at the price of RM980. Preference Shares: The company found that it can issue preference shares at the prices of RM20 per share with annual dividend payment of RM2. Ordinary Shares: The ordinary shares of the company are sold at the present price of RM5 per share. The dividend that is expected to be paid at the end of next year is RM0.80. The growth rate of dividends is constant, that is at 6% every year.
A firm has determined its optimal capital structure which is composed of the following sources and percentage of financing. Source of Capital Percentage of Financing Long-term debt 30% Preferred stock 20% Common stock equity 50% Corporate tax is 40%. Required a) Describe the relationship between cost of capital and rate of return in determining a firm's value. (4 marks) b) Using the approximation method, compute the firm's after-tax cost of debt. (6 marks) (5 marks) c) Compute the firm's cost of preferred share. d) Compute the firm's cost of common share. e) Compute the firm's weighted average cost of capital (WACC). (5 marks) (5 marks)