Based on the information below on a company, perform the following to compute the WACC (weighted average cost of capita)

• Share price = $3.00

• Number of shares outstanding = 10 million

• Beta = 2.0

• Last traded price of each 5% bond = $1,010

• Bonds pay coupons annually and mature in 5 years

• Face value of bond = $1,000

• Number of bonds issued = 20,000

• Yield on government long-term bond = 2%

• Equity risk premium = 4%

• Singapore corporate tax rate = 20%

1. Determine the cost of equity

2. Determine the cost of debt

3. Determine the WACC

The management of the above company wishes to raise their capital by $10 million. They are

considering using debt or equity.

4. In your own words, appraise how the management should raise the capital of $10 million through equity or debt. Evaluate both equity and debt, state the assumptions of the situation and explain your proposal.