EPS/EBIT analysis

Amount needed: RM100 million

Stock Price: RM1 per share
Share Outstanding: 50,000,000 (Base on assumption)
Interest Rate: 5% (Estimate base on Malaysia bank interest rate)
Tax Rate: 25% (Base on Malaysia index)
EBIT Range: RM10,000,000 RM30,000,000
Here is the EBIT for 2 options. Option 1 with 100% stock financing and Option 2 with 100% debt
financing.

100% Stock Financing

EBIT
Interest
EBT
Taxes
EAT
#Shares
EPS

100% Debt Financing

Recession
Normal
Boom
Recession
Normal
Boom
10,000,000
20,000,000 30,000,000
10,000,000 20,000,000
30,000,000
0
0
0
5,000,000
5,000,000
5,000,000
10,000,000
20,000,000 30,000,000
5,000,000 15,000,000
25,000,000
2,500,000
7,500,000
150,000,000
0.05

5,000,000

7,500,000

1,250,000
15,000,000 22,500,000
3,750,000
150,000,000 150,000,000
50,000,000
0.1
0.15
0.075

3,750,000
11,250,000
50,000,000
0.225

Below is the propose option whereby it is 70% stock financing and 30% debt financing.
70% Stock Financing and 30% Debt
Financing
EBIT
Interest
EBT

Recession
Normal
Boom
10,000,000
20,000,000 30,000,000
1,500,000
1,500,000
1,500,000
8,500,000
18,500,000 28,500,000

Taxes

2,125,000

EAT
#Shares
EPS

7,125,000
4,625,000
6,375,000
13,875,000 21,375,000
120,000,000 120,000,000 120,000,000
0.0531
0.1156
0.1781

6,250,000
18,750,000
50,000,000
0.375

Below is the propose option whereby it is 30% stock financing and 70% debt financing.

30% Stock Financing and 70% Debt

Financing
EBIT
Interest
EBT
Taxes
EAT
#Shares
EPS

Recession
10,000,000
3,500,000
6,500,000
1,625,000
4,875,000
80,000,000
0.0609

Normal
20,000,000
3,500,000
16,500,000
4,125,000
12,375,000
80,000,000
0.1547

Boom
30,000,000
3,500,000
26,500,000
6,625,000
19,875,000
80,000,000
0.2484

Different combinations of funding assumption have been developed to determine which kind
of funding is the best. As result, the fully debt financing give the highest score and provide
more value to shareholders. Hence I would recommend Hebat Gagah to opt for fully debt
financing.