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A firm currently has the following capital structure which it views as optimal.

Debt: RM3,000,000 par value of 9% bonds outstanding with an annual before-tax yield to maturity of 7.67% on a new issue. The bonds stareding sell for RM1,150 per RM1,000 par value.

Common stock: 46,000 shares outstanding currently selling for RM50 per share. The firm expects to pay a RM5.50 dividend per share one year from now and is experiencing a 3.67% growth rate in dividends, which it expects to continue indefinitely.

The firm's marginal tax rate is 40%, and it expects to be able to finance all new projects with debt and internal common equity.

Determine:

a) The current total value of the firm


b) The proportion of debt in this firm's capital structure

c) The proportion of equity in this firm's capital structure



d) The after-tax cost of debt


e) The cost of common stock


f) The firm's weighted average cost of capital

Sagot :

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