1. You are a financial analyst for Deamax Sdn. Bhd. The CEO of this company...
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1. You are a financial analyst for Deamax Sdn. Bhd. The CEO of this company request you to analyse two capital investment projects, which are Project X and Y. Each project costs RM 55,000 and the required rate of return for both projects are 15%. The projects' expected cash flows are as follows: (a) Dividend paid last year was RM3.50 and the price of share is RM40. The growth rate is 5 percent and floatation cost is RM7. Calculate the cost of new common share. (6 marks) (b) Cost of debt before tax is 25 percent and the tax rate is 32 percent. Calculate the cost of debt after tax. (2 marks) (c) Dividend paid was RM15 per share, the price of preferred share is RM90 and the floatation cost is RM12. Calculate the cost of preferred share. (4 marks) (d) Based on your answers above (a-c), calculate the weighted average cost of capital (WACC), given the capital as follows: Source of Capital Common Shares Preferred Shares Debt Total (RM) 45,000 75,500 30,000 (8 marks)
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