b$.$ Daiman Motors Bhd$.$is an all$-$equity firm with $200,000$ shares outstanding. The company's EBIT is RM$2,000,000,$ and EBIT is expected to remain constant over time $($i$.$e$.$ g $=0\%).$ The company pays out all of its earnings each year as dividend, so its earnings per share $($EPS$)$ equal its dividends per share $($DPS$).$ The company's tax rate is $40$ percent.

The company is considering issuing RM$2$ million worth of bonds $($at par$)$ and using the proceeds for a stock repurchase. If issued, the bonds would have an estimated yield to maturity of $10$ percent. The risk$-$free rate in the economy is $6\mathrm{.}6$ percent, and the market risk premium is $6$ percent. The company's beta is currently $0\mathrm{.}9,$ but its investment bankers estimate that the company's beta would rise to $1\mathrm{.}1$ if it proceeds with the recapitalization.

Assume that the shares are repurchased at a price equal to the stock market price prior to the recapitalization.

Required:

i$.$ What is the company Current Cost of Capital $($CAPM$),$ Dividend Per Share and Stock Price? $(5$ Marks$)$

ii$.$ Using the price of share calculated in $($i$),$ how much shares will be repurchased by the amount of debt issued? $(2$ Marks$)$

iii. What is the company Cost of Capital $($CAPM$),$ Dividend Per Share $($for the remaining number of shares$)$ and Stock Price AFTER Recapitalization? $(7$ Marks$)$

iv$.$ Should Daiman Motors Bhd$.$ proceed with the recapitalization?

$(1$ Mark$)$

$($Total: $25$ Marks$)$