Need answer 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?

To calculate the Earnings Per Share (EPS) for Plan 1, we can follow these steps: Plan 1 - Incur…

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

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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Kuhn Corporation is considering a new project that will require an initial investment of $4,000,000. It has a target capital structure consisting of 45% debt, 4% preferred stock, and 51% common equity. Kuhn has noncallable bonds outstanding that mature in five years with a face value of $1,000, an annual coupon rate of 10%, and a market price of $1,050.76. The yield on the company’s current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stock that pay an annual dividend of $9.00 at a price of $95.70 per share. Kuhn Corporation does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $33.35 per share, and it is expected to pay a dividend of $2.78 at the end of next year. Flotation costs will represent 8.00% of the funds raised by issuing new common stock. The company is projected to grow at a…

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