Reference no: EM132710835

Sun Suria Berhad holds a combination of debt, common shares and preferred shares in its capital structure. The optimal capital structure of the company based on the information below:

Capital Resources           Percentage of Financing (%)
Long term debt                        25
Preference Shares                   25
Ordinary Shares                       50

Bond:

• The company can issue bonds that have a maturity period of 20 years with a face value of RM1,000. The coupon rate for the bonds is 9% and is sold at the price of RM980. The cost of issuing the bonds is 2% from the face value of the bonds. The rate of corporate tax is 40%.

Preference Shares:

• The company found that it can issue preference shares at the prices of RM7.10 per share with annual dividend payment of RM0.80. The cost involved in issuing and selling shares is RM0.50 per share.

Ordinary Shares:

• The ordinary shares of the company are sold at the present price of RM5.20 per share. The dividend that is expected to be paid at the end of next year is RM0.50. The growth rate of dividends is constant, that is at 8% every year. The company must pay the floatation cost of RM0.10 per share.

Problem 1: Calculate:

1. the cost of debt.
2. Cost of preferred shares 
3. Cost of common share 
4. the weighted average cost of capital (WACC)