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Question: General Petrochemical Pcl plans to borrow 1 billion baht of bank loans to fund its plant expansion. The company pays the minimum lending rate (MLR) of 10 percent on the loans. As a listed company on the stock exchange, it pays a corporate tax rate of 25 percent.

The company expects the debt repayment will increase its interest expenses by 100 million baht a year. It plans to maintain its outstanding debt at this level. The company has 50 million shares traded on the Stock Exchange of Thailand. The share price closed at 10 baht yesterday.

In M&M theory, the company's stock should rise or fall after this announcement and by how much? Please explain.

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Category:- Basic Finance
Reference No.:- M92761927

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