How to solve

QUESTION $3$

The Assignwell Bhd$.\text{'}$s present capital structure has been determined as follows:

The CEO of Assignwell Bhd$.$ has asked you to measure the cost of various sources of

financing for the purpose of future investments decisions and the firm now is considering to

increase its non$-$current assets at the end of the year by RM$9\mathrm{.}8$ million.

The firm's $9\%$ debentures are currently selling at RM$1,050.$ The par value of these debentures

is RM$1,000$ each. The debentures have $13$ years maturity period. Floatation cost is estimated

to be at $5\mathrm{.}5\%$ of the market price of the debentures and the debentures will be redeemed at

RM$1,200.$

While, for the ordinary shares is currently selling at RM$35\mathrm{.}20$ per share. Assignwell Bhd$.$ has

just paid dividends of RM$6\mathrm{.}80$ per share to its ordinary stockholders. The dividends are

expected to grow at $3\%$ per annum. Flotation cost is estimated to be RM$7\mathrm{.}30$ per share.

Assignwell Bhd$.7\%$ preference shares, with nominal value of RM$1,100,$ is selling at RM$1,350.$

In addition to that, the firm has RM$5\mathrm{.}6$ million retained earnings available to finance any

profitable project investment next year. The corporate tax rate is $27\%.$

Required:

a$.$ Compute the cost of:

i$.$ After$-$tax cost of debenture.

$(10$ marks$)$

ii$.$ Internal equity.

$(3$ marks$)$

iii. External equity.

$(3$ marks$)$

iv$.$ Preference shares.

b$.$ Determine the firm's weighted average cost of capital of the firm.