PQR Corporation is considering the following alternative plans of financing for raising$4,000,000: The following additional information is available for PQR Corporation: Earnings before bond interest and income taxes (EBIT) are $9,000,000.The tax rate is 35%.All bonds or stocks are issued at their par values.Interest is payable at the end of each year. Required:Which plan should company choose & why (i.e. Explain the rationale behind selecting the plan)? Provide all the detailed calculations. Plan 1Plan 2Plan 34,000,000 2,500,000 1,000,0002,000,0001,500,000 1,000,000Issue Equity capital @$ 10Issue 10% bondsIssue Preference stock 10%, @$45Total amount to be raised4,000,000 4,000,000 4,000,000

QR Corporation is considering the following alternative plans of financing for raising $4,000,000: The following additional information is available for PQR Corporation: Earnings before bond interest and income taxes (EBIT) are $9,000,000. The tax rate is 35%. All bonds or stocks are issued at their par values. Interest is payable at the end of each year.

QR Corporation is considering the following alternative plans of financing for raising $4,000,000: The following additional information is available for PQR Corporation: Earnings before bond interest and income taxes (EBIT) are $9,000,000. The tax rate is 35%. All bonds or stocks are issued at their par values. Interest is payable at the end of each year.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 14PROB

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