(Long Term Financing) Kaka Sdn Bhd has decided to expand their business operation for 6 years. The company is considering the following three...
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(Long Term Financing) Kaka Sdn Bhd has decided to expand their business

operation for 6 years. The company is considering the following three financing sources to meet its requirement. i) Issue bond selling at a premium of 9 percent and a coupon interest rate of 12 percent. The floatation cost for a new issue would be approximately 5 percent of the selling price. The bond will mature in 12 years and the corporate tax rate is 25 percent. ii) Issue new preferred shares which pay 6 percent dividend on par value of RM100. The firm's preferred share is currently selling at 15 percent discount from the current market price of RM95 per share. The floatation cost will be at 15 percent of par value. iii) Issue new common shares at RM35 per share with floatation cost at 5 percent of selling price. Last year, the company paid dividend of RM1.50 per share. The dividend is expected to grow at a constant rate of 8 percent indefinitely. Which of the above financing sources would you choose? Why?

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Subject: Business, Finance
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