(b) Top Fine Company wants to make its capital structure decision which has important implications...
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(b) Top Fine Company wants to make its capital structure decision which has important implications for the value of the company and its cost of capital. Top Fine Company has Earning Before Interest and Tax (EBIT) of RM127.280. Debt financing is RM420,000 and its cost of equity if no debt taken is 20 per cent. The company has to pay tax of 30 per cent. Required: i. Calculate value of Top Fine Company's equity. (4 marks) ii. Explain the relationship between Value of Ungeared Firm and Value of Geared Firm when corporate taxes are considered. (2 marks) iii. Calculate the cost of equity capital for Top Fine Company if the cost of debt is 10%. (4 marks) iv. Calculate Weighted Average Cost of Capital (WACC). (4 marks)
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