Question 5 - Show your workings.
KLM Berhad currently has RM200,000 debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are RM100,000, and it is a zero-growth company. The company's
KLM Berhad is considering recalling the 6 percent debt by issuing RM400,000 new 7% debt. The new funds would be used to replace the old debt and to repurchase stock at the existing price. It is estimated that the increase in riskiness resulting from the leverage increase would cause the required rate of
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