Andrew Berhad has RM100 million in total assets. The firm is considering to increase its non-...

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Andrew Berhad has RM100 million in total assets. The firm is considering to increase its non- current assets at the end of the year by RM30 million. The company plans to finance 40% of the expansion with debt and the remaining 60% with equity capital. Bond financing will be at 10% rate and will be sold at par value. The common stock is currently selling at RM100 per share. The floatation cost for issuing common stock will be RM8 per share. The expected dividend for the coming year RM6 per share. The dividends are expected to grow at 6% for an indefinite period. The corporate tax rate is 25%. Internal funding available is RM10 million. REQUIREMENT a. What are the factors affecting cost of capital using your own word. b. Calculate the after tax cost of bonds, the cost of internal common equity and the cost of new common stock. c. Calculate the number of new common stock that must be sold, assuming the existing capital structure is to be maintained, subject to full utilization of retained earnings. d. Calculate the WACC for an investment level of RM30 million. Andrew Berhad has RM100 million in total assets. The firm is considering to increase its non- current assets at the end of the year by RM30 million. The company plans to finance 40% of the expansion with debt and the remaining 60% with equity capital. Bond financing will be at 10% rate and will be sold at par value. The common stock is currently selling at RM100 per share. The floatation cost for issuing common stock will be RM8 per share. The expected dividend for the coming year RM6 per share. The dividends are expected to grow at 6% for an indefinite period. The corporate tax rate is 25%. Internal funding available is RM10 million. REQUIREMENT a. What are the factors affecting cost of capital using your own word. b. Calculate the after tax cost of bonds, the cost of internal common equity and the cost of new common stock. c. Calculate the number of new common stock that must be sold, assuming the existing capital structure is to be maintained, subject to full utilization of retained earnings. d. Calculate the WACC for an investment level of RM30 million.

Answer rating: 100% (QA)

a The cost of capital is affected by various factors such as interest rates inflation market risk cr... View the full answer