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X Co is identical in all operating and risk characteristics to Y Co, except that...

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Finance

X Co is identical in all operating and risk characteristics to Y Co, except that X Co is all equity financed and Y Co is financed by equity valued at RM2.1m and debt valued at RM0.9m based on market values. X Co and Y Co operate in a country where no tax is payable. The interest paid on Y Cos debt is RM72,000 per annum, and it pays a dividend to shareholders of RM378,000 per annum. X Co pays an annual dividend of RM450,000.

Required:

(a) Calculate the value of X Co.

(b) Calculate the cost of capital for X Co.

(c) Calculate the cost of equity for Y Co, and the cost of debt for Y Co.

(d) Calculate the weighted average cost of capital for Y Co.

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