Careplus Group Berhad is considering several projects as shown below. Taking into account the risk of each of these projects, Careplus Group will add 3% to the weighted average cost of capital (WACC) for high-risk projects and deduct 3% of the WACC cost for low-risk projects.

Projek Project	Kadar Pulangan Dijangka Expected rate of return (%)	Pelaburan yang diperlukan Required capital (RM)	Risiko Risk
A	11	100 000	Rendah / Low
B	9	560 000	Tinggi / High
C	13	230 000	Sederhana / Medium
D	15	380 000	Tinggi / High
E	10	610 000	Sederhana / Medium
F	10	790 000	Tinggi/ High

Careplus has a capital structure consisting of 50% debt, 20% preferred shares and 30% common equity. Careplus has a strong financial position. Therefore, the company is able to get a new bank loan at an interest rate of 10%. Apart from the bank loan, Careplus also plans to issue preferred shares at a price of RM100 per share with a dividend payment of RM14 per year.

Careplus' common shares are currently sold at RM90 per share. The dividend for common shares last year was RM6 per share and this amount is expected to increase steadily at a rate of 6% per annum. If Careplus issues new common shares, it will have to pay a flotation fee of 20%. Careplus pays a 40% tax rate.

a) Calculate:

1. Cost of debt after tax (2 markah /marks)

2. Cost of preferred stock (3markah /marks)

3. Cost of retained earnings (3markah /marks)

4. Cost of issuing new common stock (3markah /marks)

b) Assuming the existing capital structure is the company's target capital structure, calculate the weighted average cost of capital (WACC) for Careplus if it uses retained earnings for its equity component. (7 markah /marks)

c) Assume all the above projects are independent projects and Careplus has no capital constraints.

1. Which projects (or projects) can Careplus accept? Why? (10 markah /marks)

2. Based on the answer in part (i), how much new capital does Careplus need?(2 markah /marks)