There are two alternatives of capital structure available for the firm, one is to have $500,000 equity share capital and 11% debentures of $300,000. The other alternative is to have equity share capital of $400,000; 13% preference share capital of $200,000; and 11% debentures of $300,000. The tax rate is 30% and the par value per equity share is $10. Calculate the earnings before interest and taxes at which earnings per share is indifferent among the above alternatives.

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
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There are two alternatives of capital structure available for the firm, one is to have $500,000 equity
share capital and 11% debentures of $300,000. The other alternative is to have equity share capital
of $400,000; 13% preference share capital of $200,000; and 11% debentures of $300,000. The tax
rate is 30% and the par value per equity share is $10. Calculate the earnings before interest and
taxes at which earnings per share is indifferent among the above alternatives.
BIU
2 EEE ≡≡≡
Σ
B
Transcribed Image Text:There are two alternatives of capital structure available for the firm, one is to have $500,000 equity share capital and 11% debentures of $300,000. The other alternative is to have equity share capital of $400,000; 13% preference share capital of $200,000; and 11% debentures of $300,000. The tax rate is 30% and the par value per equity share is $10. Calculate the earnings before interest and taxes at which earnings per share is indifferent among the above alternatives. BIU 2 EEE ≡≡≡ Σ B
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