Optimus Logistic Bhd needs RM2,000,000 for its expansion. The firm is considering these three (3) sources...

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Optimus Logistic Bhd needs RM2,000,000 for its expansion. The firm is considering these three (3) sources of financing. Calculate the effective cost of the following alternatives. 11) iii) Issuing new preferred stocks which pay 8 percent fixed dividend. The firm's preferred stock is currently selling for RM98. The net price of the security after the issuance costs is RM94. (Par value of preferred stock is RM100) (3 marks) Issuing new common stock at RM86 per share. The firm paid a dividend of RM5.20 per share last year to its common stockholders and investors. The dividend is expected to grow at a constant rate of 7 percent in the future. The floatation cost is 5 percent of the selling price. (5 marks) Issuing an 11 percent of RM1,000 par value of bond that will mature in twenty (20) years. The bonds floatation cost is 10 percent of the market value which is RM920. Given 25 percent tax bracket, compute the cost of each of the financing alternatives. (5 marks) Determine which alternative is the best. Why? (2 marks) Optimus Logistic Bhd needs RM2,000,000 for its expansion. The firm is considering these three (3) sources of financing. Calculate the effective cost of the following alternatives. 11) iii) Issuing new preferred stocks which pay 8 percent fixed dividend. The firm's preferred stock is currently selling for RM98. The net price of the security after the issuance costs is RM94. (Par value of preferred stock is RM100) (3 marks) Issuing new common stock at RM86 per share. The firm paid a dividend of RM5.20 per share last year to its common stockholders and investors. The dividend is expected to grow at a constant rate of 7 percent in the future. The floatation cost is 5 percent of the selling price. (5 marks) Issuing an 11 percent of RM1,000 par value of bond that will mature in twenty (20) years. The bonds floatation cost is 10 percent of the market value which is RM920. Given 25 percent tax bracket, compute the cost of each of the financing alternatives. (5 marks) Determine which alternative is the best. Why? (2 marks)

Answer rating: 100% (QA)

A Cost of Preferred Stock 8 fixed dividend RM100 x 8 RM8 Net price of security ... View the full answer