Cybernauts, Ltd., is a new firm that wishes to finance an expansion program and determine its capital structure. It can issue 20 percent debt or 18 percent preferred stock. The total capitalization of the firm will be $6 million, and common stock can be sold at $25 per share. The company is expected to have a 50 percent tax rate. Four possible capital structures being considered are as follows: Plan Debt Preferred Common 120% 20% 60% 2 35% 25% 40% 3 50% 0% 50% 4 40% 25% 25% What would be the earnings per share for the four alternatives if earnings before interest and taxes are at $1.5 million?

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
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Cybernauts,
that wishes to finance an
Ltd., is a new firm
expansion program and
determine its capital structure. It
can issue 20
percent debt or 18 percent
preferred stock. The total
capitalization of the firm will be $6
million, and common stock can be
sold at
$25 per share. The company is
expected to have a 50 percent tax
rate. Four possible capital
structures being considered are as
follows: Plan Debt Preferred
Common 120% 20% 60% 2 35%
25% 40% 3 50% 0% 50% 4 40%
25% 25% What would be the
earnings
per share for the four alternatives
if earnings before interest and
taxes are at $1.5 million?
Transcribed Image Text:Cybernauts, that wishes to finance an Ltd., is a new firm expansion program and determine its capital structure. It can issue 20 percent debt or 18 percent preferred stock. The total capitalization of the firm will be $6 million, and common stock can be sold at $25 per share. The company is expected to have a 50 percent tax rate. Four possible capital structures being considered are as follows: Plan Debt Preferred Common 120% 20% 60% 2 35% 25% 40% 3 50% 0% 50% 4 40% 25% 25% What would be the earnings per share for the four alternatives if earnings before interest and taxes are at $1.5 million?
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