Eco Global Development Group Berhad is a public listed Malaysian company involved mainly in property development. With an ever growing presence in Klang Valley, Iskandar Malaysia and Penang, Eco Global is set to become a benchmark property developer in Eco development. Recently, Eco Global Berhad acquired 308.72 acres of land located south of Cyberjaya for the development of a luxurious eco-theme mixed project called Eco Wilderness. The company said the acquisition was a good opportunity for it to replenish its land bank in major growth areas. Besides the strategic location, the land, which was bought on a net land basis, came with an approved development order. Eco Global plans an eco-themed mixed residential and commercial development of the

parcel. The development of the first phase, 100 units of Bungalow, 500 units of Semi- Detached and Terrace House with gross development value RM 1 billion. Eco Global offers

various facilities such as jogging track and playground in order to promote a healthy lifestyle among the home buyers. Each of the residential precincts in this location is gated and guarded with a single entry. Eco Global currently has RM 50 million debt outstanding with 6% interest and 20 million shares of common stock. Eco Global wishes to raise RM 120,000,000 to finance this project and is considering two alternatives:

Plan A: This plan would involve the use of financial leverage. RM120,000,000 would be raised by selling bonds with an effective interest rate of 5% per annum. Plan B: To have RM120,000,000 in equity by selling stock at RM3 per share. The companys corporate tax rate is 28%.

5

i. Calculate the indifference level of EBIT between the TWO (2) plans. Determine the EPS at that point. (7 marks)

ii. If EBIT is expected to be RM13,000,000, explain which financing plan should be selected.