question number 3..help me please
i. if sales doubled, by what percent will the EPS increase? (2 marks) il. if EBIT decreased by 8%, what would the new EPS be? (3 marks) c. Prepare the analytical income statement for the two alternatives financing plans, (6 marks) d. Calculate the DOL, DFL and DCL after the expansion (5 marks) e. Explain which financing plan you favour and the risk involved with each plan. (4 marks) QUESTION 3 (25 MARKS) Global Bhd. is considering a few projects for its investment. Investment costs and expected rate of return for these projects are as follows: Project Investment cost (RM) Expected rate of return (%) 900,000 15 2 457.000 11 3 500,000 7.5 4 780,000 16 Capital structure for Global Bhd. is as follows: Balance Sheet for Global Bhd. CONFIDENTIAL/3 3/5 FBA/PFS2163/AUG20 Zynes of Financing Weight Bond (8%. par value of RM1,000, maturity period of 10 years) Preferred stock (4000 stocks, par value of RM40, dividend RMI.20) Common stock 45% 10% 45% Total 100% Floatation cost for bond is 10% of the market price, RM0.90 per share for issuing new common stocks and RM1.50 per share for preferred stocks. Last year, the company has paid the dividend of RM2.50 per share and expected to grow at 6% per annum forever. The market price is RM1,050 for bond, RM15 for preferred stock and RM20 for common stock. The existing retained earnings is equivalent to RM825,000. Tax rate is 34%. Based on the information given, calculate: . The firm's before tax cost of debt FBA/PFS2163/AUG 20 Types of Financing Weishi Bond (8%. par value of RM1,000, maturity period of 10 years) Preferred stock (4000 stocks, par value of RM40, dividend RM1.20) Common stock 45% 10% 45% Total 100% Floatation cost for bond is 10% of the market price, RM0.90 per share for issuing new common stocks and RM1.50 per share for preferred stocks. Last year, the company has paid the dividend of RM2.50 per share and expected to grow at 6% per annum forever. The market price is RM1,050 for bond, RM15 for preferred stock and RM20 for common stock. The existing retained earnings is equivalent to RM825,000. Tax rate is 34%. Based on the information given, calculate: a. The firm's before-tax cost of debt (3.5 marks) b. The firm's after-tax cost of debt (1 mark) c. The firm's cost of a preferred stock (2 marks) d. The firm's cost of retained earnings (2 marks) e The firm's cost of new issuance of common stock (2.5 marks) 1. The weighted average cost of capital up to the point when retained earnings are exhausted (3 marks) g. The weighted average cost of capital, assuming the firm plans to pay out all of its earnings as dividend (2 marks) h. Construct the Investment Opportunity Schedule and draw the weighted marginal cost of capital curve. (7 marks) i. Decide which project should the company choose? (2 marks) CONFIDENTIAL/4 i. if sales doubled, by what percent will the EPS increase? (2 marks) il. if EBIT decreased by 8%, what would the new EPS be? (3 marks) c. Prepare the analytical income statement for the two alternatives financing plans, (6 marks) d. Calculate the DOL, DFL and DCL after the expansion (5 marks) e. Explain which financing plan you favour and the risk involved with each plan. (4 marks) QUESTION 3 (25 MARKS) Global Bhd. is considering a few projects for its investment. Investment costs and expected rate of return for these projects are as follows: Project Investment cost (RM) Expected rate of return (%) 900,000 15 2 457.000 11 3 500,000 7.5 4 780,000 16 Capital structure for Global Bhd. is as follows: Balance Sheet for Global Bhd. CONFIDENTIAL/3 3/5 FBA/PFS2163/AUG20 Zynes of Financing Weight Bond (8%. par value of RM1,000, maturity period of 10 years) Preferred stock (4000 stocks, par value of RM40, dividend RMI.20) Common stock 45% 10% 45% Total 100% Floatation cost for bond is 10% of the market price, RM0.90 per share for issuing new common stocks and RM1.50 per share for preferred stocks. Last year, the company has paid the dividend of RM2.50 per share and expected to grow at 6% per annum forever. The market price is RM1,050 for bond, RM15 for preferred stock and RM20 for common stock. The existing retained earnings is equivalent to RM825,000. Tax rate is 34%. Based on the information given, calculate: . The firm's before tax cost of debt FBA/PFS2163/AUG 20 Types of Financing Weishi Bond (8%. par value of RM1,000, maturity period of 10 years) Preferred stock (4000 stocks, par value of RM40, dividend RM1.20) Common stock 45% 10% 45% Total 100% Floatation cost for bond is 10% of the market price, RM0.90 per share for issuing new common stocks and RM1.50 per share for preferred stocks. Last year, the company has paid the dividend of RM2.50 per share and expected to grow at 6% per annum forever. The market price is RM1,050 for bond, RM15 for preferred stock and RM20 for common stock. The existing retained earnings is equivalent to RM825,000. Tax rate is 34%. Based on the information given, calculate: a. The firm's before-tax cost of debt (3.5 marks) b. The firm's after-tax cost of debt (1 mark) c. The firm's cost of a preferred stock (2 marks) d. The firm's cost of retained earnings (2 marks) e The firm's cost of new issuance of common stock (2.5 marks) 1. The weighted average cost of capital up to the point when retained earnings are exhausted (3 marks) g. The weighted average cost of capital, assuming the firm plans to pay out all of its earnings as dividend (2 marks) h. Construct the Investment Opportunity Schedule and draw the weighted marginal cost of capital curve. (7 marks) i. Decide which project should the company choose? (2 marks) CONFIDENTIAL/4
