Debt: A firm can sell 15,000 25 -year bonds at 108% of par value. The semi -annual coupon rate is 5.8%. Preference shares: A firm can issue 35,000 preference shares at a par value of RM100 per share. The firm will pay an annual dividend of 2.8% of par value. The current price of the preference shares is RM65. Ordinary

Debt: A firm can sell 15,000 25 -year bonds at 108% of par value. The semi -annual coupon rate is 5.8%.

Preference shares: A firm can issue 35,000 preference shares at a par value of RM100 per share. The firm will pay an annual dividend of 2.8% of par value. The current price of the preference shares is RM65.

Ordinary shares: There are 575,000 units of shares sold at RM64 per share.

If beta = 1.09, market risk premium = 7%, risk -free rate = 3.2%, and company tax rate = 21%, Calculate:

(a) Cost of debt 

(b) Cost of preference shares 

(c) Cost of ordinary shares

(d) WACC 

Expert Answer

(a) Cost of debt The issue price of the bond is 108% of par value, so the company receives 1.08 x $100 = $108 for each bond. The semi-annual coupon ra View the full answer