Give typing answer with explanation and conclusion The following is the capital structure of a company:Source of CapitalEquity Shares @ RM100each9% Cumulative PreferenceShares @ RM100 each11% DebenturesRetained EarningsBook Value (RM) Market Value (RM)800,0001,600,000200,000600,000400,0002,000,000240,000660,0002,500,000The current market price of the company's equity share is RM200. For thelast year the company had paid equity dividend at 25 per cent and itsdividend is likely to grow 5 per cent every year. The corporate tax rate is30 per cent. In the market, the risk free rate is 5.3%, market risk premiumis 4.5% and beta is 1.3.(iii) Suggest to the management to reduce the WACC in item (ii).(iv) Calculate the WACC on the basis of market value weights.You are required to:(i) Calculate the cost of capital for each source of capital.(ii) Calculate the weighted average cost of capital (WACC) on the basis ofbook value weights.

i) Cost of Capital for Each Source of Capital: Equity Shares: The cost of equity can be calculated…

he following is the capital structure of a company: Source of Capital quity Shares @ RM100 ach % Cumulative Preference hares @ RM100 each 1% Debentures etained Earnings Book Value (RM) Market Value (RM) 800,000 1,600,000 200,000 600,000 400,000 2,000,000 240,000 660,000 2,500,000 he current market price of the company's equity share is RM200. For the st year the company had paid equity dividend at 25 per cent and its vidend is likely to grow 5 per cent every year. The corporate tax rate is per cent. In the market, the risk free rate is 5.3%, market risk premium 4.5% and beta is 1.3.

he following is the capital structure of a company: Source of Capital quity Shares @ RM100 ach % Cumulative Preference hares @ RM100 each 1% Debentures etained Earnings Book Value (RM) Market Value (RM) 800,000 1,600,000 200,000 600,000 400,000 2,000,000 240,000 660,000 2,500,000 he current market price of the company's equity share is RM200. For the st year the company had paid equity dividend at 25 per cent and its vidend is likely to grow 5 per cent every year. The corporate tax rate is per cent. In the market, the risk free rate is 5.3%, market risk premium 4.5% and beta is 1.3.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Give typing answer with explanation and conclusion

The following is the capital structure of a company:
Source of Capital
Equity Shares @ RM100
each
9% Cumulative Preference
Shares @ RM100 each
11% Debentures
Retained Earnings
Book Value (RM) Market Value (RM)
800,000
1,600,000
200,000
600,000
400,000
2,000,000
240,000
660,000
2,500,000
The current market price of the company's equity share is RM200. For the
last year the company had paid equity dividend at 25 per cent and its
dividend is likely to grow 5 per cent every year. The corporate tax rate is
30 per cent. In the market, the risk free rate is 5.3%, market risk premium
is 4.5% and beta is 1.3.
(iii) Suggest to the management to reduce the WACC in item (ii).
(iv) Calculate the WACC on the basis of market value weights.
You are required to:
(i) Calculate the cost of capital for each source of capital.
(ii) Calculate the weighted average cost of capital (WACC) on the basis of
book value weights.

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