Question $4-$ Show your workings.

a$.$Blue Sdn$.$ Bhd$.($BSB$)$ expects pre$-$recapitalization earnings after tax of RM$2\mathrm{.}55$ million this fiscal year. The shares of the company are now being traded at a price of RMIOO with a $1\mathrm{.}5$ million number of share outstanding. The interest expense is RM$200,000.$

Currently, the firm is planning a recapitalization strategy by issuing a debt at the value of RMIO.O million with a yield to maturity of $6$ percent. The proceeds from this debt issuance will then be used to pay the existing debt of RM$2$ million and the remaining will be used to repurchase common shares. With the assumption that the stock price remains unchanged and the company's tax rate is to be $40\%,$ how much would be the firm's earnings per share if it were to proceed with the recapitalization? Should the firm proceed with its plan? $(15$ Marks$)$

b$.$Oyai Sdn$.$ Bhd$.($OSB$)$ has sales of RM$3,000,000.$ The variable cost is about $60\%$ of sales with fixed operating costs total of RM$500,000.$ The company's interest expense is RM$200,$OOO.

Based on the above information, you are required to:

Compute the break$-$even point $($BEP$)($RM$)$ for OSB.

ii$.$Calculate the degree of operating leverage for OSB.

iii.Calculate the degree of financial leverage for OSB. $(4$ Marks$)$

$(3$ Marks$)$

$(3$ Marks$)$

iv$.$Compute the combined leverage for OSB. $(1$ Mark$)$

v$.$If sales decrease by $20\%,$ what will be the new level of OSB's EPS if the firm has

$100,000$ shares outstanding? $(4$ Marks$)$