Robee, Inc. Is trying to decide how best to finance a proposed P10 million capital investment. Under plan A , the project will be financed by entirely with long term 9% bonds. The firm currently has no debt or preferred stock. Under plan B, Common stock will be sold to net the firm P20 per share; presently one million shares are outstanding. The corporate tax is 40%. a) Calculate the indifference level of EBIT associated with the two financing plans (an EBIT that both financing plans have the same EPS) b) If EBIT expected to be P3.10 million, which plan will result in higher EPS?
Robee, Inc. Is trying to decide how best to finance a proposed P10 million capital investment. Under plan A , the project will be financed by entirely with long term 9% bonds. The firm currently has no debt or preferred stock. Under plan B, Common stock will be sold to net the firm P20 per share; presently one million shares are outstanding. The corporate tax is 40%. a) Calculate the indifference level of EBIT associated with the two financing plans (an EBIT that both financing plans have the same EPS) b) If EBIT expected to be P3.10 million, which plan will result in higher EPS?
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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Robee, Inc. Is trying to decide how best to finance a proposed P10 million capital investment. Under plan A , the project will be financed by entirely with long term 9% bonds. The firm currently has no debt or
a) Calculate the indifference level of EBIT associated with the two financing plans (an EBIT that both financing plans have the same EPS)
b) If EBIT expected to be P3.10 million, which plan will result in higher EPS?
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