Looking-forward Productions is considering a project with an initial start-up cost of RM960,000. The firm maintains a debt-equity ratio of 0.50 and has a flotation cost of debt of 6.8 percent and a flotation cost of equity of 11.4 percent. The firm has sufficient internally generated equity to cover the equity cost of this project. 

 

Required:

What is the initial cost of the project including the flotation costs? 

B. Jade Works maintains a debt-equity ratio of 0.65 and has a tax rate of 32 percent. The firm does not issue preferred stock. The pre-tax cost of debt is 9.8 percent. There are 25,000 shares of stock outstanding with a beta of 1.2 and a market price of RM19 a share. The current market risk premium is 8.5 percent and the current risk-free rate is 3.6 percent. This year, the firm paid an annual dividend of RM1.10 a share and expects to increase that amount by 2 percent each year.

Required:

Using an average expected cost of equity, what is the weighted average cost of capital? 

Answer rating: 100% (QA)

A Initial Cost of Project Including Flotation Costs Flotation cost of equity Par value Issued shares ... View the full answer