Ancova Bhd. wants to calculate its cost of capital. The company employs you as the financial consultant to help with the calculations. You have been provided with the following information: Debt: the company has issued
Ancova Bhd. wants to calculate its cost of capital. The company employs you as the financial consultant to help with the calculations. You have been provided with the following information:
Debt: the company has issued corporate bonds 8 years ago. The bond has an estimated pre-tax cost of 8%.
Preferred: the company has issued a 6%
Common: the company has recently paid dividend of RM0.16 per common share, at which the market price is RM3.00 per share. The company believes the dividend growth of 5% will maintain for a long future. The flotation cost of new common stock is 4% of market price.
The current capital structure of the company is 35% debt, 5% preferred stocks, and 60% common stock. The company falls under 25% tax bracket.
(i) Suppose the
(ii) Suppose the retained earnings of Ancova Bhd. is exhausted, calculate the new WACC of Ancova Bhd.
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