TMA1_Corporate Finance Jan 2018.docx - WAWASAN OPEN UNIVERSITY BBF304/05 Corporate Finance TMA 1 Instruction Answer all questions Total Marks 100 UNIT 1

TMA1_Corporate Finance Jan 2018.docx - WAWASAN OPEN...

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WAWASAN OPEN UNIVERSITY BBF304/05 Corporate Finance TMA 1 Instruction: Answer all questions Total Marks: 100%
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UNIT 1 Question 1 Agency costs are costs borne by shareholders due to the agency problem and represent a loss of shareholder wealth. Suggest TWO (2) solutions to overcome the agency costs. (10 marks) UNIT 2 Question 2 Common stock in IJM Bhd has a beta of 0.80. The market risk premium is 8.6 percent and the risk-free rate is 7.5 percent. IJM’s last dividend is RM4 per share, and the dividend is expected to grow at 8 percent indefinitely. The common stock is currently sells for RM70 per share. i) Based on the CAPM model compute the cost of equity capital. (6 marks) ii) Based on the Dividend Growth Model what is the cost of equity?(6 marks) Question 3 The information of the capital structure for Genting Berhad is as follows: Types of Financing Bond Preferred Stock Common Stock Percentage of Financing 40% 15% 45% Characteristics 6% coupon, RM1,000 par, 10-year maturity 50,000 shares outstanding, RM20 par NA Current Market Price RM1,050
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