ATC Bhd was founded 8 years ago by the current CEO, Mr. Han. Prior to ATC...

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ATC Bhd was founded 8 years ago by the current CEO, Mr. Han. Prior to ATC Bhd, Mr. Han business has experience bankruptcy, resulting him to be cautious with debt financing. ATC Bhd currently has 120 million of shares in issue and the current ex div ordinary share price is RM3.00 per share. The ordinary share dividends paid out were RM0.30 per share. Based on current trend, ordinary share dividends are expected to grow at a constant rate of 4% per annum for the foreseeable future. ATC Bhd also has in issue of bonds with a book value of RM72 million and their current interest market price is RM125 per RM100 bond. The current after tax cost of debt of ATC Bhd is 7% and the corporate tax rate is 26%. ATC Bhd is evaluating a new project with a cost of RM40 million. This project is expected to increase ATC Bhd annual pre-tax earnings by RM15 million in perpetuity. The finance director of ATC Bhd, Miss Kay, has heard that the market value of the company will increase if the weighted average of cost of capital is decreased. Miss Kay proposed to decrease the weighted average cost of ATC Bhd by issuing RM40 million bonds at their nominal rates of RM100 per bond. The bonds would pay annual interest of 8%. The bonds will be redeemed at 10% premium to nominal value after 10 years. b. C. Compute the current (before the new issue of bonds) weighted average cost of capital of ATC Bhd. (6 marks) After the new issue of the bonds take place, calculates: Cost of new bonds after tax Revised weighted average cost of capital i. ii. (8 marks) ATC Bhd was founded 8 years ago by the current CEO, Mr. Han. Prior to ATC Bhd, Mr. Han business has experience bankruptcy, resulting him to be cautious with debt financing. ATC Bhd currently has 120 million of shares in issue and the current ex div ordinary share price is RM3.00 per share. The ordinary share dividends paid out were RM0.30 per share. Based on current trend, ordinary share dividends are expected to grow at a constant rate of 4% per annum for the foreseeable future. ATC Bhd also has in issue of bonds with a book value of RM72 million and their current interest market price is RM125 per RM100 bond. The current after tax cost of debt of ATC Bhd is 7% and the corporate tax rate is 26%. ATC Bhd is evaluating a new project with a cost of RM40 million. This project is expected to increase ATC Bhd annual pre-tax earnings by RM15 million in perpetuity. The finance director of ATC Bhd, Miss Kay, has heard that the market value of the company will increase if the weighted average of cost of capital is decreased. Miss Kay proposed to decrease the weighted average cost of ATC Bhd by issuing RM40 million bonds at their nominal rates of RM100 per bond. The bonds would pay annual interest of 8%. The bonds will be redeemed at 10% premium to nominal value after 10 years. b. C. Compute the current (before the new issue of bonds) weighted average cost of capital of ATC Bhd. (6 marks) After the new issue of the bonds take place, calculates: Cost of new bonds after tax Revised weighted average cost of capital i. ii. (8 marks)

Answer rating: 100% (QA)

To compute the current weighted average cost of capital WACC of ATC Bhd we need to consider the cost of equity and the cost of debt a Cost of Equity T... View the full answer