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PLS ANSWER ASAP, TQVM !! Linguine Berhad is an all-equity firm with 500,000 shares outstanding. The company's EBIT is RM3,000,000, and EBIT is expected to
PLS ANSWER ASAP, TQVM !!
Linguine Berhad is an all-equity firm with 500,000 shares outstanding. The company's EBIT is RM3,000,000, and EBIT is expected to remain constant over time. The company pays out all of its earnings each year, so its EPS equals its DPS. The company's tax rate is 28 percent. The company is considering issuing RM2,000,000 worth of bonds (at par) and using the proceeds for a stock repurchase. If issued, the bonds would have an estimated YTM of 10 percent. The risk-free rate is 3.6 percent, and the market risk premium is 6 percent. The company's beta is currently 1.0, but investment bankers expected the beta will rise to 1.2 if the recapitalization occurs. Assume that the shares are repurchased at a price equal to the stock market price prior to the recapitalization. Required: a) Calculate the company's current stock price. (4 Marks) b) What would be the expected year-end stock price if the company proceeded with the recapitalization? (4 Marks) c) Should Linguine Berhad proceed with the recapitalization? (2 Marks)
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