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Please help me . Please help me Question 2 SBS company is planning an asset to purchase a machine that cost 1,500,000.00. The company is
Please help me . Please help me
Question 2 SBS company is planning an asset to purchase a machine that cost 1,500,000.00. The company is considering the financing of the purchase. The choice that is open either an all-equity financing or a mixture of debt and equity. Currently, deposits in commercial banks provide a risk-free rate of return at 4%. Stock market analyst is of the opinion that the market is expected to provide a return of 20%. Companies in the same industry with no financing through debt has a beta of 0.7. The average share price of companies in the industry is RM 3 per share. The corporate tax rate is 30%. The bond market indicates that issuing bonds at RM 250,000 will cost the company 10% coupon rate. Amount of bonds at RM 500,000 will be charged with a 10.5% coupon rate. The company is analysing the situation with 2 alternative of bonds issues for amount of RM 250,000 and RM 500,000. Another alternative is to use financing with 100% equity. The company expects the earnings before interest and tax (EBIT) in the following scenarios. EBIT Probability 0.333 0.333 0.333 300,000.00 325,000.00 350,000.00 Prepare an analysis of each of the financing alternatives that is available for the company. Analysis must include the cost of capital of each alternative, scenario analysis of each alternative earning per share (EPS), and the contribution of the machine on the economic value of the company. Give your recommendation on the best alternative the company should take. Required: Prepare an analysis of each of the financing alternatives that is available for the company. a. Cost of Capital for each alternativeStep by Step Solution
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