Richmond Corporation is considering to invest in new project in order to expand its business. The project requires RM700,000, and the fund will be earned through issuing long term instrument, which is 20 percent from bond, 30 percent from common share and 50 percent from preferred share. Following is the information of the sources of financing.

- Richmond Corporation estimates that it can issue RM1,000 par value bonds that pay coupon rate 6 percent annually and will mature in 10 years. Given the market price of the bond is RM960 and the tax rate is 30 percent.

- The company can issue preferred shares at RM100 per share with RM2.50 dividend per share and flotation costs will be RM3 per share.

- The common shares are currently selling at RM90 per share. Richmond Corporation has paid a dividend of RM2.50 per share last year. This dividend is expected to grow at a constant rate of 7 percent per year and flotation cost will be 5 percent.

Based on the information given, calculate;

(a) Cost of debt after tax 

(b) Cost of preferred share 

(c) Cost of common share.

(d) Weighted Average Cost of Capital (WACC)

Answer rating: 100% (QA)

a Cost of Debt After Tax Given information Coupon rate 6 Market price of the bond RM960 Par value of the bond RM1000 Tax rate 30 To calculate the cost ... View the full answer