Provide help with this question Ph Co. has an 8% debt with a book value of 8 M and a commonstock of 8.5 M with outstanding shares of 370,000. The expectedlevel of EBIT after the expansion is 3.5 M. The income tax rate is25%. The firm is considering a 12 M expansion program using oneof the following:Plan 1 - Incur additional debt at 10% interest;Plan 2 - Sell preferred shares with an 11.5% dividend yield; andPlan 3 - Sell new common stock at 25 per share.How much is the EPS for Plan 1?

5. Calculate the Earnings Per Share (EPS): EPS=Net Income/Number of Outstanding Shares The number of…

Answered: Ph Co. has an 8% debt with a book value…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 11P

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A firm has determined its optimal capital structure, which is composed of the following sources and target market value proportions. Debt: The firm can obtain a 5-year loan from Colorful Bank for $2,500,000, at an annual rate of 10%. Preferred Stock: The firm has determined it can issue $100 par value preferred stock at $103 per share for a total of $3,500,000. The stock will pay a 10% annual dividend. The cost of issuing and selling the stock is $3 per share. Common Stock: The firm’s common stock is currently selling for $150 per share. The dividend expected to be paid at the end of the coming year is $15. Its dividend payments have been growing at a constant rate of 5%, total common stock is $4,000,000. Additionally, the firm’s marginal tax rate is 30 percent. The firm is currently studying the feasibility of investing in a machine worth $6,000,000 which will reduce cash operating costs for $2,600,000 yearly, it will have a 3-year life and will be depreciated on a straight-line…
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