Question 6

(a) Liliac Berhad is a unlevered firm with the cost of equity 20 percent per year. Based on the current evaluation made by financial manager, Liliac Berhad expected to earn Earnings before Interest and tax amounted RM600,000 in perpetuity. Liliac Berhad is a company approved with a pioneer status certificate issued by Malaysian Development Investment Authority (MIDA).

Required:

i. Compute the value of Liliac Berhad.

(3 marks)

ii. Calculate the weightage average cost of capital for Liliac Berhad if the company decided to change its capital structure by issuing additional debt of RM1,200,000 from RCB Bank to finance new project. The bank charged interest rate 10 percent per annum. Assume that the pioneer status is expired and the corporate tax charged is 24 percent.