Ramos Berhad has the following capital structure which it considers optimal: Debt-30%, PS-18%, CS-52%. The Firm paid a dividend of RM2/share last year and its stock currently sells at RM80/share. Tax rate is 35% and investors expect earnings and dividends to grow at a constant rate of 12% in the future. New CS have a flotation cost of 10%. New PS would be sold at RM100/share with a dividend of RM9. Flotation cost is RM6/share. For Debt, it is a 9% irredeemable debt with a current value of RM1,100. Annual interest payment has just been made. What is the weighted average after-tax costs of capital of the company?
Ramos Berhad has the following capital structure which it considers optimal: Debt-30%, PS-18%, CS-52%. The Firm paid a dividend of RM2/share last year and its stock currently sells at RM80/share. Tax rate is 35% and investors expect earnings and dividends to grow at a constant rate of 12% in the future. New CS have a flotation cost of 10%. New PS would be sold at RM100/share with a dividend of RM9. Flotation cost is RM6/share. For Debt, it is a 9% irredeemable debt with a current value of RM1,100. Annual interest payment has just been made. What is the weighted average after-tax costs of capital of the company?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Ramos Berhad has the following capital structure which it considers optimal: Debt-30%, PS-18%, CS-52%. The Firm paid a dividend of RM2/share last year and its stock currently sells at RM80/share. Tax rate is 35% and investors expect earnings and dividends to grow at a constant rate of 12% in the future. New CS have a flotation cost of 10%. New PS would be sold at RM100/share with a dividend of RM9. Flotation cost is RM6/share. For Debt, it is a 9% irredeemable debt with a current value of RM1,100. Annual interest payment has just been made. What is the weighted average after-tax costs of capital of the company?
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