Question 2 +The Management of "Tanjung Uda Berhad" is planning a RM4,000,000 expansion this year. The expansioncan be financed by issuing either common shares of bonds. The new common share can be sold forRM$5 per share. The bonds can be issued with a 12% coupon rates. The firm's existing preference sharepay dividends of RM$2 per share. The company's corporate income tax is 30%. The financial statementof Tanjung Uda Berhad is as follow:-TanjungUdaBerhadBalance Sheet as at 31st December 2021+RM$ 2,000,000+Current AssetsFixed AssetsRM$ 8,000,000+RM$ 10,000,000+Current LiabilitiesRM$ 1,500,000+Bonds:RM$ 4,000,000+(8.5%, RM1,000 par value)(9%, RM1,000 par Value)RM$ 1,000,000+Preference Shares(RM$ 100 par value)RM$ 500,000+Ordinary Shares(RM$ 2 par value)RM$ 2,400,000+Retained EarningsRM$ 600,000+RM$ 10,000,000+Required:a) Calculate the indifference level of EBIT between the two Plans.b) If EBIT is Expected to be RM1,500,000 which plan will result in ahigh EPS?

Indifference level of EBIT is the level where EPS will be same in both plan irrespective of debt…

Answered: Question 2 + The Management of "Tanjung…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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