Bunga Merah Berhad (BMB) is a company having business in Marrakesh, Morocco. BMB's before tax cost...
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Bunga Merah Berhad (BMB) is a company having business in Marrakesh, Morocco. BMB's before tax cost of debt is 15%. BMB's perpetual preferred stock is at a price of RM50 a share. The preferred stock issue is expected to pay a constant annual dividend of RM4.80 a share. BMB's common stock has a beta of 1.20. The market risk premium is 8% and the risk-free rate is 4%. The tax rate is 30%. From the above information, you are required to answer the following questions. a. Compute: i. after-tax cost of debt ii. cost of preferred stock iii. cost of common stock (2 Marks) (2 Marks) (2 Marks) b. BMB has a target capital structure of 50% common stock, 10% preferred stock and 40% debt. Based on your computation in part (a), calculate BMB's Weighted Average Cost of Capital (WACC). (2 Marks) c. BMB is considering a project that will give a return of 5%. Should BMB proceed with this project? Explain your answer. (2 Marks) (Total: 10 Marks) Bunga Merah Berhad (BMB) is a company having business in Marrakesh, Morocco. BMB's before tax cost of debt is 15%. BMB's perpetual preferred stock is at a price of RM50 a share. The preferred stock issue is expected to pay a constant annual dividend of RM4.80 a share. BMB's common stock has a beta of 1.20. The market risk premium is 8% and the risk-free rate is 4%. The tax rate is 30%. From the above information, you are required to answer the following questions. a. Compute: i. after-tax cost of debt ii. cost of preferred stock iii. cost of common stock (2 Marks) (2 Marks) (2 Marks) b. BMB has a target capital structure of 50% common stock, 10% preferred stock and 40% debt. Based on your computation in part (a), calculate BMB's Weighted Average Cost of Capital (WACC). (2 Marks) c. BMB is considering a project that will give a return of 5%. Should BMB proceed with this project? Explain your answer. (2 Marks) (Total: 10 Marks)
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a Compute 1 Aftertax cost of debt Given Beforetax cost of debt 15 Tax rate 30 Aftertax cost of debt ... View the full answer
Related Book For
Horngrens Financial And Managerial Accounting The Financial Chapters
ISBN: 9780134486840
6th Edition
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura
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