Question
Mint Green Berhad has no debt outstanding and a total market value of RM300,000. Earnings before interest and taxes, EBIT, are projected to be RM150,000
Mint Green Berhad has no debt outstanding and a total market value of RM300,000. Earnings before interest and taxes, EBIT, are projected to be RM150,000 under the normal economic conditions. Mint Green Berhad is considering a RM 100 ,000 debt issue with a 10% interest rate. The proceed will be used to repurchase shares of stock. There are currently 50,000 shares outstanding, and cost of equity will increase from 10% to 12% after the recapitalization. Tax rate is at 24%. If Mint Green Berhad goes through recapitalization, calculate the new EPS during the normal economic condition. Should the company proceed with the recapitalization?
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