Calculate issue additional common stock

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Mr Afiq is working as a financial Manager at MKM Corporation. He has to advise the company to determine the firm cost of long term financing. He has to calculate the following alternatives:

i) Issue 10 years, 9 percent coupon bond each with floatation cost of 3 percent of the market price. The firm must sell the bonds at 5% premium.

ii) Issue additional common stock with next year dividend RM1.50. The par value of stock is RM1, while current market price is RM25. Floatation cost is 8 percent from the market price. The dividend growth is 6 percent.

Question 1: If corporate tax bracket is 30 percent, by analyzing the above costs, which is the best source the company should choose and why?

Reference no: EM132566217

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