Naveed SAOG is considering two plans to buy a new machine for OMR 200000. Plan A involves issuance of 50000 shares of common stock at the current market price of OMR 3 per share and 10000 shares at OMR 5 per share. Plan B involves issuance of OMR 150000, 12% bonds and OMR 50000, 24% debentures at face value. Income before interest and taxes on the new machine will be OMR 300000. Income taxes are expected to be 25%. Naveed SAOG currently has 10000 shares of common stock outstanding and Interest-bearing bonds of OMR 25000 at a rate of 9% per year. (b) Calculate basic Earnings Per Share (EPS) under the both plans and select the best cause of action from the viewpoint of existing shareholders.
Naveed SAOG is considering two plans to buy a new machine for OMR 200000. Plan A involves issuance of 50000 shares of common stock at the current market price of OMR 3 per share and 10000 shares at OMR 5 per share. Plan B involves issuance of OMR 150000, 12% bonds and OMR 50000, 24% debentures at face value. Income before interest and taxes on the new machine will be OMR 300000. Income taxes are expected to be 25%. Naveed SAOG currently has 10000 shares of common stock outstanding and Interest-bearing bonds of OMR 25000 at a rate of 9% per year. (b) Calculate basic Earnings Per Share (EPS) under the both plans and select the best cause of action from the viewpoint of existing shareholders.
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
Section: Chapter Questions
Problem 1PS
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Kindly solve part B only
Transcribed Image Text:Naveed SAOG is considering two plans to buy a new machine for OMR 200000. Plan A involves
issuance of 50000 shares of common stock at the current market price of OMR 3 per share and
10000 shares at OMR 5 per share. Plan B involves issuance of OMR 150000, 12% bonds and
OMR 50000, 24% debentures at face value.
Income before interest and taxes on the new machine will be OMR 300000. Income taxes are
expected to be 25%. Naveed SAOG currently has 10000 shares of common stock outstanding
and Interest-bearing bonds of OMR 25000 at a rate of 9% per year.
(b) Calculate basic Earnings Per Share (EPS) under the both plans and select the best cause of
action from the viewpoint of existing shareholders.
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