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    Maf 603 July 2022 Q2 Syahirah Binti Mayasin

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    Ira Syahirah
    The document discusses: 1) Calculating the cost of capital components for bonds, preference shares, retained earnings, and new ordinary shares of a company. 2) Determining the weighted average cost of capital (WACC) of 21.88% for a new project based on the financing weights and costs of the capital components. 3) Recommending issuing 1,275 new bonds to finance 40% of the RM3,000,000 project cost, which can be fully funded by the company's retained earnings.

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    Maf 603 July 2022 Q2 Syahirah Binti Mayasin

    Uploaded by

    Ira Syahirah
    198 views2 pages
    The document discusses: 1) Calculating the cost of capital components for bonds, preference shares, retained earnings, and new ordinary shares of a company. 2) Determining the weighted average cost of capital (WACC) of 21.88% for a new project based on the financing weights and costs of the capital components. 3) Recommending issuing 1,275 new bonds to finance 40% of the RM3,000,000 project cost, which can be fully funded by the company's retained earnings.

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    MAF 603 JULY 2022 Q2 SYAHIRAH BINTI MAYASIN

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    The document discusses: 1) Calculating the cost of capital components for bonds, preference shares, retained earnings, and new ordinary shares of a company. 2) Determining the weighted average cost of capital (WACC) of 21.88% for a new project based on the financing weights and costs of the capital components. 3) Recommending issuing 1,275 new bonds to finance 40% of the RM3,000,000 project cost, which can be fully funded by the company's retained earnings.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    198 views2 pages

    Maf 603 July 2022 Q2 Syahirah Binti Mayasin

    Uploaded by

    Ira Syahirah
    The document discusses: 1) Calculating the cost of capital components for bonds, preference shares, retained earnings, and new ordinary shares of a company. 2) Determining the weighted average cost of capital (WACC) of 21.88% for a new project based on the financing weights and costs of the capital components. 3) Recommending issuing 1,275 new bonds to finance 40% of the RM3,000,000 project cost, which can be fully funded by the company's retained earnings.

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    You are on page 1of 2

    July 2022

    Question
    =>
    2

    a) Calculate the components of cost of capital for :


    i. Bonds
    NP: RM970 x 971. RM940.9
    =

    61.xkm1,000=RMO
    I:

    Kd =
    60/940.9= 6.38).

    ii. Preference shares


    D
    kp NPO
    =

    kp
    =
    (RM100 x 8%.)/ (RM110 + RM 5.50) =
    6.931.

    iii. Retained
    earnings Do(1 + 9
    po
    7g or
    Di
    po g
    +

    NP= RM 5.20-RMO.CO =
    RMS ke: (RM0.80/RMS) + 0.06:221.
    D. =
    R M0.80

    g= 6

    iv. New ordinary shares


    kne
    =
    Doltg + g or p +g

    kne: (RM080/(R M5.2xS0%) + 0.06: 36.77.

    b) Determined the WACC if the company undertake this project


    Maximum capex: Retained earnings available for investment
    Equity weight of financing (NOF)

    maximum capex: (RMS,000,000/(km8,000,000 + km2,000,000) /nmc5,000,000] =


    RM12,500,000

    cost of new project: RM2,950,000 + m30,000 + RM20,000: Rm3,000,000

    ↳ The retained earnings is sufficient to finance the new project of RM3,000,000. Therefore, no new share will be
    issued to the public.WACC for the company is:

    component of capital cost of capital-after tax weight of financing weighted cost

    Kd 6.931. 10m/25m= 40 2.772

    kp 221 sm/25m = 201. 4.4

    Ke 36.771 (8m + 2m)/23m 40%


    =
    14. 708

    wmcc =
    21.88

    C) No of new bond to be issued


    bond of financing:40xRm3,000,000 km1,200,000
    =

    No of new bond:RM1,200,000 / km940.9= 1,275 units


    B.

    i. Recommend one of the proxy companies.


    Since the economy isn't sure what will happen, the board wants to invest in a project with low risk. Mr. Izzat Danish should

    recommend Angerik And because it has less risk, which is shown by both Ba and Be, which show that it has less business risk

    and financial risk.Be for Anggerik And is lower because they only used 30% debt to pay for their assets. Since the shareholders

    have less financial risk, the cost of equity is also lower.

    ii calculate the project-specific cost of equity

    ungeared beta Anggerik (proxy) =


    0.62

    Re-geared beta with current CS: Bax(retvalve]


    Kemuning =0.62x (100160) = 1.03

    cost of equity using CAOm= Rf+Geared BetaCkm-Rf)


    51. + [1.03(7%.)]
    =

    12.211.
    =

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