Colour Life Berhad: Financing Options for Growth

What is the annual coupon that Colour Life Berhad will pay for a unit of its bond each year?

A. RM50

B. RM100

C. RM150

D. RM1,000

The correct answer is B. RM100.

To determine the annual coupon that Colour Life Berhad will pay for a unit of its bond each year, we need to consider the details provided for Alternative B.

Colour Life Berhad is seeking financing options for their new plant in Johore, and one of the alternatives they are considering is issuing a 15-year, RM1,000 straight bond at a 5 percent discount. This bond will pay a 10 percent coupon annually.

In this case, the annual coupon payment can be calculated as a percentage of the bond's face value. With the face value of the bond being RM1,000 and the coupon rate being 10 percent, the annual coupon payment would be:

Annual coupon payment = Coupon rate * Face value

Annual coupon payment = 10% * RM1,000

Annual coupon payment = RM100

This means that Colour Life Berhad will pay RM100 as the annual coupon for each unit of its bond every year. This financing option provides a predictable income stream for investors and supports the company's growth plans.

By choosing this financing option, Colour Life Berhad can secure the necessary funds to expand their operations and drive success in their new plant in Johore. It showcases their commitment to growth and innovation in the industry.