Merah Berhad current interest expense is RM2,000,000, operating income (EBIT) is and Earnings per share...
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Merah Berhad current interest expense is RM2,000,000, operating income (EBIT) is and Earnings per share (EPS) is RM4.00. The company owes RM20,000,000 in debt, with a 10\% interest rate. The corporate tax rate is 28%. Historically, the company's price-to-earnings (P/E) ratio has been 10x. Investment bankers have recommended that the company be recapitalized. Their proposal is to sell enough new bonds at a 10% rate to buy back 1,400,000 shares of common stock. Assume that the repurchase has no impact on the company's operating income, but it will increase the company's dollar interest expenditure. The company's price earnings (P/E) ratio will be also increase to 10.5x following the repurchase as a result of the heightened financial risk. Required: a) What is the net income before the change? b) How many shares are currently outstanding? c) What is the current stock price? d) What would be the expected year-end stock price if the company proceeded with the recapitalization? Should Merah Berhad proceed with the recapitalization? Blue Sky Berhad currently owes RM200,000 in debt with a 6% coupon rate. Its earnings before interest and taxes (EBIT) is RM100,000, and it is a zero-growth company. The cost of equity for the company is 10%, and the tax rate is 27%. There are 10,000 shares of common stock outstanding in the company. The dividend payout ratio is 100%. Blue Sky Berhad is considering recalling the 6% loan and issuing a fresh 7% debt for RM 400,000 . The fund would be used to pay down existing debt and repurchase stock at current prices. The required rate of return on equity would have to climb to 11% as a result of the increased riskiness caused by the debt increase. If this plan is carried out, what would be the company's new stock price? Question 1 (2 M) The target capital structure for Grey Berhad is 30% debt, 10% preferred stock, and 60 percent common stock. Assume that the firm's bond's after-tax yield to maturity is 5%, and that the investors demand a 7 percent t return on Grey preferred stock and a 14% return on common shares. What is the weighted average cost of capital (WACC) of Grey Berhad
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Merah Berhad current interest expense is RM2,000,000, operating income (EBIT) is and Earnings per share (EPS) is RM4.00. The company owes RM20,000,000 in debt, with a 10\% interest rate. The corporate tax rate is 28%. Historically, the company's price-to-earnings (P/E) ratio has been 10x. Investment bankers have recommended that the company be recapitalized. Their proposal is to sell enough new bonds at a 10% rate to buy back 1,400,000 shares of common stock. Assume that the repurchase has no impact on the company's operating income, but it will increase the company's dollar interest expenditure. The company's price earnings (P/E) ratio will be also increase to 10.5x following the repurchase as a result of the heightened financial risk. Required: a) What is the net income before the change? b) How many shares are currently outstanding? c) What is the current stock price? d) What would be the expected year-end stock price if the company proceeded with the recapitalization? Should Merah Berhad proceed with the recapitalization? Blue Sky Berhad currently owes RM200,000 in debt with a 6% coupon rate. Its earnings before interest and taxes (EBIT) is RM100,000, and it is a zero-growth company. The cost of equity for the company is 10%, and the tax rate is 27%. There are 10,000 shares of common stock outstanding in the company. The dividend payout ratio is 100%. Blue Sky Berhad is considering recalling the 6% loan and issuing a fresh 7% debt for RM 400,000 . The fund would be used to pay down existing debt and repurchase stock at current prices. The required rate of return on equity would have to climb to 11% as a result of the increased riskiness caused by the debt increase. If this plan is carried out, what would be the company's new stock price? Question 1 (2 M) The target capital structure for Grey Berhad is 30% debt, 10% preferred stock, and 60 percent common stock. Assume that the firm's bond's after-tax yield to maturity is 5%, and that the investors demand a 7 percent t return on Grey preferred stock and a 14% return on common shares. What is the weighted average cost of capital (WACC) of Grey Berhad 