Question 3 [Total: 40 marks] a) AMD Bhd. has a beta equal to 1.50 while the risk-free rate is 8 percent and the market risk premium is 14 percent. It has 7-year maturity semi-annual bonds outstanding with a price of RM767.03 that have a coupon rate of 7 percent. The firm is financed with RM120 million of equity and RM80 million of debt, and is subject to 25 percent marginal tax rate. Calculate the weighted average cost of capital of the firm. (10 marks) b) ZEISS Bhd. has issued preferred stock with a price equal to the par amount of RM100 five years ago. If the dividend yield on that issue was 12 percent, explain why the firm's current cost of preferred stock is likely not equal to 12 percent. (4 marks) c) SUNWAY Bhd. is considering to bid a contract to supply clay pipes to HOLY Construction. HOLY plans to purchase 2,000 clay pipes each year for the coming three years. To begin this contract, SUNWAY will need a manufacturing equipment which cost RM165,000. This equipment will depreciate on straight-line basis over its five-year life. At the end of third year, the after-tax salvage value is RM65,000. Additional fixed cost is RM45,000 each year while variable cost is RM12 per clay pipe. An additional investment of RM55,000 in net working capital is required at the beginning of the contract. The firm's tax rate is 25 percent and the cost of capital is 13 percent. Compute the price for each clay pipe that SUNWAY could offer to HOLY Construction when it can still create value for its shareholders. (14 marks) d) Discuss the conflicting capital investment decisions which could be produced when using the NPV and IRR methods. (12 marks)