Pandu company started their own business with their own capital (without debt) the amount of earnings before
Question:
Pandu company started their own business with their own capital (without debt) the amount of earnings before interest and taxes (EBIT) gained was 100,000 IDR meanwhile the amount of current cost of equity was 10% and the tax for company's income was 40%. The company had 10,000 shares with 50 IDR per each share in the market price. The director of the company is considering the change of the capital structure without debt or loan to be a capital. With debt 30% and equity 70% based on the market price. The fund from the loan will be used to repurchase the stock. By having a leverage this will cost the rate of return on equity will increase up to 12%.
If the plan of changing the structure of a structure of capital is done, how much is WACC?
Beside, explain by using theory that u have learned to decide the policy to increase the loan is in increasing the loan the right thing to do?
Fundamentals of Corporate Finance
ISBN: 978-1259024962
6th Canadian edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim