(a) Barakah Islamic Bank is planning to open another branch. With implementation of organization strategy and industry practice, the bank current capital design is exceptionally leveraged. Barakah Islamic Bank's President, Dato' Mirzan Daud Bakar has announced that the new branch project will be financed by 49 percent debt from the bank Earnings Before Interest and Tax (EBIT) which is RM10,540,500. The bank cost of equity capital is 17.8 percent and 7.3 percent of debt outstanding. The bank has corporate tax at 28.75 percent. i. Determine the Weightage Average Cost of Capital (WACC) of the new branch. ii. Mr Nubhan is interested to be a shareholder for the new bank branch. He has to pay a personal tax rate on share income of 12.3 percent, personal tax rate on debt income of 28.9 percent and corporate tax of 43.98 percent. Calculate the gain from leverage for Mr. Nubhan.
(a) Barakah Islamic Bank is planning to open another branch. With implementation of organization strategy and industry practice, the bank current capital design is exceptionally leveraged. Barakah Islamic Bank's President, Dato' Mirzan Daud Bakar has announced that the new branch project will be financed by 49 percent debt from the bank Earnings Before Interest and Tax (EBIT) which is RM10,540,500. The bank cost of equity capital is 17.8 percent and 7.3 percent of debt outstanding. The bank has corporate tax at 28.75 percent. i. Determine the Weightage Average Cost of Capital (WACC) of the new branch. ii. Mr Nubhan is interested to be a shareholder for the new bank branch. He has to pay a personal tax rate on share income of 12.3 percent, personal tax rate on debt income of 28.9 percent and corporate tax of 43.98 percent. Calculate the gain from leverage for Mr. Nubhan.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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