Assume Syarikat Mesra needs capital to buy a new building and office equipment. Syarikat Mesra plans...
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Assume Syarikat Mesra needs capital to buy a new building and office equipment. Syarikat Mesra plans to use bonds and common stocks as their source of capital. The company plans to issue a 20-year bond with an interest rate of 8% (coupon rate), face value of RM1000 and will be sold at the same price as the par value. However, the float cost is expected to be 7% of the face value of the bond. The total market value of the bond is RM2,000,000. As for common shares, the Company plans to issue 400,000 additional share units. Mesra company shares are now sold at a price of RM12 per share. The cost of issuing new shares is estimated at RM2 per share. The corporate tax rate is 26%. 1. What is the weighting for bonds and common stocks? 2. What is the after-tax cost of the bond issue? 3. How much does common stock cost? 4. What is the average total cost of capital (WACC) required by Syarikat Mesra? Assume Syarikat Mesra needs capital to buy a new building and office equipment. Syarikat Mesra plans to use bonds and common stocks as their source of capital. The company plans to issue a 20-year bond with an interest rate of 8% (coupon rate), face value of RM1000 and will be sold at the same price as the par value. However, the float cost is expected to be 7% of the face value of the bond. The total market value of the bond is RM2,000,000. As for common shares, the Company plans to issue 400,000 additional share units. Mesra company shares are now sold at a price of RM12 per share. The cost of issuing new shares is estimated at RM2 per share. The corporate tax rate is 26%. 1. What is the weighting for bonds and common stocks? 2. What is the after-tax cost of the bond issue? 3. How much does common stock cost? 4. What is the average total cost of capital (WACC) required by Syarikat Mesra?
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Answer rating: 100% (QA)
1 Weighting for bonds and common stocks Bonds RM2000000 RM2000000 400000 x RM12 083 Common Stock... View the full answer
Related Book For
Financial Accounting Tools for Business Decision Making
ISBN: 978-1119368458
7th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine
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