Goodcom Berhad has provided you with the following data: Book value of equity: RM 80,000,000 Net earnings: RM 50,000,000 Market price per share: RM 15 Number of shares: 10,000,000 Required: Calculate current earnings per share and book value per share 2. The company wanted to take advantage of a sudden stock market slump by buying back 25% of its shares at a price of RM4 per share by borrowing from banks. Its after-tax cost of debt is 5%. Calculate the company’s earnings per share and book value per share if the company proceeded with its plan. Should the company proceed with the buy back? Why? 3. Will your answer change if the price of the buy-back is RM9/share? Support your answer with appropriate calculations
Goodcom Berhad has provided you with the following data: Book value of equity: RM 80,000,000 Net earnings: RM 50,000,000 Market price per share: RM 15 Number of shares: 10,000,000 Required: Calculate current earnings per share and book value per share 2. The company wanted to take advantage of a sudden stock market slump by buying back 25% of its shares at a price of RM4 per share by borrowing from banks. Its after-tax cost of debt is 5%. Calculate the company’s earnings per share and book value per share if the company proceeded with its plan. Should the company proceed with the buy back? Why? 3. Will your answer change if the price of the buy-back is RM9/share? Support your answer with appropriate calculations
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 4P
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Question
Goodcom Berhad has provided you with the following data:
Book value of equity: RM 80,000,000
Net earnings: RM 50,000,000
Market price per share: RM 15
Number of shares: 10,000,000
Required:
- Calculate current earnings per share and book value per share
2. The company wanted to take advantage of a sudden stock market slump by buying back 25% of its shares at a price of RM4 per share by borrowing from banks. Its after-tax cost of debt is 5%. Calculate the company’s earnings per share and book value per share if the company proceeded with its plan. Should the company proceed with the buy back? Why?
3. Will your answer change if the price of the buy-back is RM9/share? Support your answer with appropriate calculations.
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