Question 2 Merah Berhad current interest expense is RM2,000,000, operating income (EBIT) is RM40,000,000 and Earnings per share (EPS) is RM4.00. The company owes RM20,000,000 in debt, with a 10% interest rate. The corporate tax rate is 28%. Historically, the company's price-to-earnings (P/E) ratio has been 10x. Investment bankers have recommended that the company be recapitalized. Their proposal is to sell enough new bonds at a 10% rate to buy back 1,400,000 shares of common stock.

Assume that the repurchase has no impact on the company's operating income, but it will increase the company's dollar interest expenditure. The company's price earnings (P/E) ratio will be also increase to 10.5x following the repurchase because of the heightened financial risk.

Required:

a) What is the net income before the change? b) How many shares are currently outstanding? c) What is the current stock price? d) What would be the expected year-end stock price if the company proceeded with the recapitalization? Should Merah Berhad proceed with the recapitalization?

Question 6

BBQ Berhad projected sales for the first six months of 2023 are given below:

Jan. RM500,000 Feb. RM740,000 Mar. RM380,000 April RM490,000 May RM740,000 June RM610,000

40% of sales are collected in cash at time of sale, 50% are collected in the month following the sale, and the remaining 10% are collected in the second month following the sale.

Cost of goods sold is 60% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale.

Total other cash expenses are RM40,000/month.

The company's cash balance as of February 28, 2023, will be RM25,000. Excess cash will be used to retire short-term borrowing (if any). BBQ Berhad has no short-term borrowing as of February 28, 2023. Assume that the interest rate on short-term borrowing is 1% per month.

The company must have a minimum cash balance of RM15,000 at the beginning of each month.

Required: Prepare a cash budget for the months of March to May 2023.