4. Ryza Tatlonghari wants to buy 5,000 preference shares, P150 par value from Mawon Lim. According 
to her sources, the preference shares come with a constant dividend of P42 per share. Ryza intends 
to hold the preference shares long-term and has no plans on selling them soon. Moreover, she 
requires a 12% return on all his investments. What is the value of each preference share?

Quest Exploration Ltd is trying to take advantage of the commodity boom by increasing its exploration activities. However, as a junior mining company it will need to raise additional capital over the coming year. The tax rate of the company is 30%. As financial manager, you have prepared the following information and financial data.

Debt: Quest Exploration can raise an unlimited amount of debt by selling $1,000 par (face) value, 6.5% coupon interest 10-year bonds. In order to sell the issue, an average discount of $20 per bond needs to be given. Additionally, floatation costs of 2% of par value will be incurred.

Preference shares: An unlimited number of preference shares can be sold under the following terms: the shares have a face value of $100 per share, the annual dividend rate is 6% of the face value and the floatation cost is expected to be $4 per share. The preference shares are expected to sell for $102 before cost considerations.

Ordinary shares: The current price of Quest Exploration’s ordinary shares is $35 per share. A cash dividend of $3.00 per share was recently paid. The firm’s dividends have grown at an annual rate of 5% and are expected to grow at this rate in the foreseeable future. The floatation cost is expected to be approximately $2 per share.

Retained earnings: Quest Exploration expects to generate $100,000 of retained earnings in the coming year.

Required:

Calculate the specific cost of each source of financing. (Round your answer to the nearest 0.01%).

Precision Steel expects to retain $72,000 of it earnings for the current year which it will use to partially fund new investment opportunities. The optimal capital structure is comprised of 30% debt, 10% preference shares, and 60% ordinary share equity. Taxes are expected to be 30%. What dollar amount of total new financing can Precision raise before it exhausts its retained earnings and is forced to sell new shares?

The Shocking Corporation is subject to a company tax rate of30%.

The company asks you to calculate the after tax cost of each ofthe following sources of funds:

(a) Ordinary $1 shares expect the next dividend payment to be$0.102 per share which is expected to grow at a rate of 2% inperpetuity. The current market price is$ 1.20.

(b) What is the cost of $100,000 in retained earnings?

(c) 10% preference shares of $2 with a current market price of$2.50.

(d) 9% debentures with an issued value of $100,redeemable infour years at $100 with a current market price of $90.90.