CASE STUDY (20 Marks) You have

CASE STUDY (20 Marks)

You have been appointed as the investment manager at the Bright Star Bhd, a public listed SME company on Bursa Malaysia security market. The company was listed five years ago. Now, the board of directors planning for next wave of growth. You have to make an important finance decision before move on to investment decision. The company is preparing following activities for additional fund requirement.

Company related information:

1. Current dividend for Bright Star Bhd’s ordinary stock is RM1.00 and dividend growth rate is 3.0%. The company will issue new ordinary stock at RM12.00 per share. Flotation cost of 2.5%. (need calculate)

2. The company will issue new preferred stock at RM9.00 each with a flotation cost of 4.5%. Preferred stock dividend will be RM1.20 (need calculate)

3. The company’s bond is paying 6% coupon payment.

4. Bright Star Bhd’s capital structure comprising:

Ordinary shares 3,600,000

Preferred shares 1,400,000

Bonds 3,000,000

Retained earnings. 3,000,000

5. Corporate tax stands at 28%.


Question 1

Based on the available information, you are required to compute weighted average cost of capital (WACC) for the Bright Star Bhd. Provide detailed workings for all the relevant components involved.

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