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Question: astroemeria berhad has a capital structure consisting of 30 debt...

Question details

Astroemeria Berhad has a capital structure consisting of 30% debt and 70% equity. Astroemeria Berhad debt currently has an 8% yield to maturity. The risk-free rate (krf) is 5%, and the market risk premium (km-krf) is 6%. Using the CAPM, Alstroemeria Berhad estimates that the cost of equity is currently 12%. The company has a 28% tax rate.

Required:
i. Calculate Alstroemeria Berhad current Weighted Average Cost of Capital (WACC). (3 Marks)

ii. What is the current beta (ß) on Astroemeria Berhad common stock? (2 Marks)

iii. Alstroemeria Berhad is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity of the company's bond would rise to 9.5%; and the beta would also change to 1.6. Should the company proceed with the restructure? What would you advise Astroemeria Berhad? (4 Marks)

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