90.2K

Verified Solution

Link Copied!

Question 4 On 31 December 2012, the total assets of Stream Berhad were RM10 million. The firm plans to invest in new projects costing RM5 million. Currently, the capital structure of the company, which is considered optimal, is as follows: Debt RM 3,500,000 Common stock RM 6,500,000 Total RM10,000,000 nhance the projects, the company plans to issue 9% irredeemable bonds at RM970 with a flotation of RM20 per bond. Common stock can be issued at its current market price of RM5 per share. on cost of 5% of market price will be incurred. The stockholders' required return is estimated to be consisting of a dividend yield of 6% and an expected growth rate of 9%. Next year's expected 15%, consisting dividend is RM0.20 per share. The company es paid on 1 million shares investment purp mpany earned a net profit after tax of RM3 million. However, dividends of RM0.28 per share will be on 1 million shares outstanding immediately. Only earnings after dividend would be available for stment purposes. The corporate tax rate is 25%. Scanned with CamScanner Financial Management for for Beginners 330 pany plans to use only Required: a. Determine the after-tax cost of the following: 1. New debt ii. Retained earnings iii. New common stock What would be the maximum size of the capital budget (in RM), if the company pla retained earnings for the equity portion? c. Calculate the firm's weighted average cost of capital if the above investments are under. d. Calculate the number of ordinary shares to be issued by Stream Berhad if the undertaken, assuming that the equity portion comes from a new issue of shares. ad if the projects are

Answer & Explanation Solved by verified expert

See Answer