Question

Question 1 Sumur Berhad has the following capital structure. Source of Financing Market Value Cost of Financing Bonds RM100 million 6% Preference shares RM 50 million 7% Ordinary shares RM150 million 10% Required: If the corporate tax rate is 25%, calculate the firm's WACC.

Answer 1

for bonds after tax cost is relevant:

=>before tax cost *(1- tax rate)

=>6%*(1- 0.25)

=>4%

=>0.04.

now calculation of WACC:

source	amount	weight	cost	weight * cost
bonds	100 m	(100/300)=>0.3333	4%	1.3332%
preference shares	50 m	(50/300)=>0.1667	7%	1.1669%
ordinary shares	150 m	(150/300)=>0.50	10%	5%
	300m		WACC	7.50%