QUESTION 2 Prestige Bhd is an all-equity firm proposes to repurchase parts of its common stock by issuing corporate debt amounting to RM5.0 million. The cost of financing charged at the rate of 8% per annum. Currently, the company has perpetual earnings before interest and taxes (EBIT) of RM1.5 million per year. The outstanding number of shares is 2.5 million units worth at RM5.00 per share. Assume that there are no taxes and bankruptcy costs. Required: A. B. C. Calculate the following for Prestige Bhd., BEFORE and AFTER the proposal: i. The value of company. ii. The market value of company's equity. iii. The cost of equity. (4 marks) Assuming the company's tax rate is 25% and EBIT remains at RM1.5 million per year, determine the following for Prestige Bhd BEFORE and AFTER the proposal: i. The new value of firm. ii. The new overall cost of capital (4 marks) Suggests two (2) assumptions used in the Modigliani Miller Propositions with corporate taxes. (2 marks) (Total: 10 marks) CS Scanned with CamScanner