20.2 A company's present capital structure consists of 1,000,000 shares of equity stock. It requires *10 million of external financing for which it is considering three alternatives. Alternative A calls for issuing 1,000,000 equity shares (* 10 par); alternative B calls for issuing 600,000 equity shares (10 par) and 400,000 preference shares (10 par) carrying 11 percent dividend; alterna- tive C calls for issuing 200,000 equity shares (10 par) and 8 million of debentures carrying 15 percent interest. The company's tax rate is 50 percent. Required: (a) What is the EPS - PBIT equation for alternatives A, B, and C? (b) Rank the alternatives according to EPS over varying levels of PBIT. itu charos (10 par) sellin

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter12: The Cost Of Capital
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20.2 A company's present capital structure consists of 1,000,000 shares of equity stock. It requires
*10 million of external financing for which it is considering three alternatives. Alternative A
calls for issuing 1,000,000 equity shares (* 10 par); alternative B calls for issuing 600,000 equity
shares (10 par) and 400,000 preference shares (10 par) carrying 11 percent dividend; alterna-
tive C calls for issuing 200,000 equity shares (10 par) and 8 million of debentures carrying 15
percent interest. The company's tax rate is 50 percent.
Required:
(a) What is the EPS - PBIT equation for alternatives A, B, and C?
(b) Rank the alternatives according to EPS over varying levels of PBIT.
itu charos (10 par) sellin
Transcribed Image Text:20.2 A company's present capital structure consists of 1,000,000 shares of equity stock. It requires *10 million of external financing for which it is considering three alternatives. Alternative A calls for issuing 1,000,000 equity shares (* 10 par); alternative B calls for issuing 600,000 equity shares (10 par) and 400,000 preference shares (10 par) carrying 11 percent dividend; alterna- tive C calls for issuing 200,000 equity shares (10 par) and 8 million of debentures carrying 15 percent interest. The company's tax rate is 50 percent. Required: (a) What is the EPS - PBIT equation for alternatives A, B, and C? (b) Rank the alternatives according to EPS over varying levels of PBIT. itu charos (10 par) sellin
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