QUESTION 1

Attik SB is planning to expand its integrated oil operations to support the growing demand for its products. Below is the companys capital structure

Financial Instrument	Book Value
Debt (8 percent coupon rate )	8,000,000
Preferred Stock (5 percent dividend)	9,600,000
Common Stock (RM30 par)	33,000,000
Total	50,600,000

To support the companys business expansion program, the company plans to raise additional funds amounting to RM10 million. The company needs to decide on the following two financing alternatives

Financial Instrument	Financing Alternatives
	Plan 1	Plan 2
Bond	Issue RM5 million at 10 percent coupon rate	50 percent of the funds will be obtained through debt financing with 9 percent interest
Preferred Stock	Issue RM3 million of 7 percent preferred stock	Nil
Common Stock	Issue RM2 millions of common stock at RM20 per share	Another 50 percent will be sourced through the issuance of common stock at RM25 per share

Given the rate is 40 percent, you are required to do the following

1. Calculate the point of indifference (POI) for both EBIT and EPS
2. Construct the EBIT-EPS-POI Curve
3. Which financing alternative should the company choose if EBIT is at RM12,000,000

(20 marks)