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EBK CONTEMPORARY FINANCIAL MANAGEMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 20P

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

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