Bestari Shipping Co. has to raise RM2 million for expansion and has the following financing alternatives. Calculate the cost of each alternative if the company is in a 40
percent tax bracket.
Debt:
par value.
Issue a 12 year, 15 percent bond at RM950 which has a floatation cost of 5 percent of its
Preferred Share: Issue a 6.5 percent RM100 par value of preferred share. The cost of issuing these stocks
is estimated at 8 percent of selling price of RM90.