Preference Shares


  1. BONDS

Bond with a par value of RM1000 were issued by KEE company and have another 15 years before reaching the maturity period. The coupon rate promised is 5% per year, paid twice a year. The market interest rate of bonds with similar risk level with this company’s bond is 6%.

What is the present market value of this bond?


Ordinary shares of Mesra Company had just been sold at the price of RM2.30 per share. The company expects to experience a constant growth rate of 10.5% and the dividend at the end of the year is expected to be RM0.25.

What is the expected rate of return for the shares of Mesra Company?


If Cabin Company pays dividends as much as RM1 per year for its preference shares and the required rate of return is 12%, what is the value of these preference shares?

  1. WACC

The information below is the total financing for each capital resource of Jati Company.

Long Term Debt40,000
Preference Shares20,000
Ordinary Shares40,000

The cost of debt before tax is 9.37% T

The cost of preference shares is 10%

The cost of ordinary shares is 13%

Marginal tax is 34%

What is the Weighted average cost of capital (WACC) for the company?

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