Gagah Motors Enterprise., a producer of turbine generators, is in this situation: EBIT = RM4 million, tax rate = T = 35%, debt outstanding = D = RM2 million, rd = 10%, rs = 15%, shares of stock outstanding = No = 600,000, and book value per share = RM10. Because Gagah’s product market is stable and the company expects no growth, all earnings are paid out as dividends. The debt consists of perpetual bonds. Required:(i). What are Gagah’s earning per share (EPS) and its price per share (P0)?(ii). What is Gagah’s weighted average cost of capital (WACC)?

Earning per share (EPS) refers to the per-share amount that an investor earns on their invested…

Answered: Gagah Motors Enterprise., a producer of…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter14: Distributions To Shareholders: Dividends And Repurchases

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Gagah Motors Enterprise., a producer of turbine generators, is in this situation: EBIT = RM4 million, tax rate = T = 35%, debt outstanding = D = RM2 million, rd = 10%, rs = 15%, shares of stock outstanding = No = 600,000, and book value per share = RM10. Because Gagah’s product market is stable and the company expects no growth, all earnings are paid out as dividends. The debt consists of perpetual bonds.

Required:

(i). What are Gagah’s earning per share (EPS) and its price per share (P₀)?

(ii). What is Gagah’s weighted average cost of capital (WACC)?

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