The following information applies to Ekovest Bhd: All earnings generated are paid out as...
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Accounting
The following information applies to Ekovest Bhd:
All earnings generated are paid out as dividends since the product market for its product is stable and expects no growth. The debt consists of perpetual bonds. Required:
a)What are Ekovest Bhd's earning per share (EPS) and its price per share?
b) Ekovest can increase its debt by RM? million, to a total of RM11 million, using the new debt to buy back and retire some of the shares at current price. Its interest rate on debt will be 11 % (it will have to call and refund the old debt), and its cost of new equity will rise from 14% to 16%. Operating income will remain constant. Should Ekovest change its capital structure? ( 10 Marks) c) If Ekovest did not have to refund the old debt of RMX million, how would this effect things?
\begin{tabular}{|l|c|l|c|} \hline Operating Income (EBIT) & RM6,000,000 & Cost of debt & 9% \\ \hline Debt & RM4,000,000 & Cost of equity & 14% \\ \hline Shares outstanding & 2,500,000 & Tax rate & 30% \\ \hline Book value per share & RM8.00 & & \\ \hline \end{tabular}
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