What would be the company new stock price

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Question - Blue Sky 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 cost of equity is 10 %, and its tax rate is 27%. The company has 10,000 shares of common stock outstanding. The dividend payout ratio is 100%.

Blue Sky Berhad is considering recalling the 6 % 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 return on equity to increase to 11 %. If this plan is carried out, what would be the company's new stock price?

Reference no: EM132955161

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