In 2021, the company has a plan to raise 1,500 billion VND to expand the operation. The company is considering two scenarios (1) issue 150,000,000 common stocks with the par value of 10,000 VND; (2) issue bonds with a 10 percent annual coupon. Assume that current interest expense is unchanged from 2020. They expect annual EBIT to increase by 1060 billion VND. Corporate tax rate of 20 percent. EBIT 2020 = 936 billion VND Interest = 88 billion VND No. of share outstanding 541 million 3.1. Calculate the EPS of each scenario.
In 2021, the company has a plan to raise 1,500 billion VND to expand the operation. The company is considering two scenarios (1) issue 150,000,000 common stocks with the par value of 10,000 VND; (2) issue bonds with a 10 percent annual coupon. Assume that current interest expense is unchanged from 2020. They expect annual EBIT to increase by 1060 billion VND. Corporate tax rate of 20 percent. EBIT 2020 = 936 billion VND Interest = 88 billion VND No. of share outstanding 541 million 3.1. Calculate the EPS of each scenario.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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In 2021, the company has a plan to raise 1,500 billion VND to expand the operation. The company is considering two scenarios (1) issue 150,000,000 common stocks with the par value of 10,000 VND; (2) issue bonds with a 10 percent annual coupon. Assume that current interest expense is unchanged from 2020. They expect annual EBIT to increase by 1060 billion VND. Corporate tax rate of 20 percent.
EBIT 2020 = 936 billion VND
Interest = 88 billion VND
No. of share outstanding 541 million
3.1. Calculate the EPS of each scenario.
3.2.Calculate the EBIT-EPS indifference point and draw a graph of the EBIT-EPS indifference point. If the company’s goal is to maximize its EPS, which is financing scenario chosen? Why?
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