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The summarized Statement of Financial Position of Dedak Berhad at 30 June 2017 was as follows....

The summarized Statement of Financial Position of Dedak Berhad at 30 June 2017 was as follows.

RM’000

RM’000

Fixed assets

15,350

Current assets

5,900

Creditors falling due within one year

(2,600)

Net current assets

3,300

9% debentures

(8,000)

10,650

Ordinary share capital (RM0.25 shares)

2,000

7% preference shares (RM1 shares)

1,000

Share premium account

1,100

Retained Earnings

6,550

10,650

The current price of the ordinary shares is RM1.35 ex dividend. The dividend of RM0.10 is payable during the next few days. The expected rate of growth of the dividend is 9% per annum. The current price of the preference shares is RM0.77 and the dividend has recently been paid. The debenture interest has also been paid recently and the debentures are currently trading at RM80 per RM100 nominal. Corporate tax is at the rate of 30%.

Required

  1. Calculate the company’s weighted average cost of capital (WACC), using the respective market values as weighting factors.
  2. Assume that Dedak Berhad issued the debentures one year ago to refinance a new investment.

Discuss the reasons why Dedak Berhad may have issued debentures rather than preference shares to raise the required finance.

  1. Explain what services a merchant bank may have provided to Dedak Berhad in connection with the raising of this finance.

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thanks for posting....?

jeff jeffy answered 1 month ago
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