a) Boboi Corporation has decided to expand its business and it needs RM5 million. Three sources...

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a) Boboi Corporation has decided to expand its business and it needs RM5 million. Three sources of financing are available: Common Stock The firm is expected to pay dividend of RM3.50 per share. The dividend is expected to grow at a rate of 7 percent forever. The current market price for the share is RM67. Bond Issue long-term debt that is currently selling for 109 percent of its face value of RM1,000. The issue matures in 12 years and pays an annual coupon rate of 7.5 percent. The tax rate is 35 percent. Preferred Stock The firm can issue RM100 per share with an 11 percent dividend. The stock is selling in the market for RM97 and has floatation costs equal to 5 percent of the market price. i) Compute the cost of capital for each source of financing. (10 marks) ii) Justify the best alternative for Boboi Corporation. (2 marks) a) Boboi Corporation has decided to expand its business and it needs RM5 million. Three sources of financing are available: Common Stock The firm is expected to pay dividend of RM3.50 per share. The dividend is expected to grow at a rate of 7 percent forever. The current market price for the share is RM67. Bond Issue long-term debt that is currently selling for 109 percent of its face value of RM1,000. The issue matures in 12 years and pays an annual coupon rate of 7.5 percent. The tax rate is 35 percent. Preferred Stock The firm can issue RM100 per share with an 11 percent dividend. The stock is selling in the market for RM97 and has floatation costs equal to 5 percent of the market price. i) Compute the cost of capital for each source of financing. (10 marks) ii) Justify the best alternative for Boboi Corporation. (2 marks)