XYZ is expecting EBIT of $80,000. It is considering 3 financing plans. In each case, the common stock will be sold at $20 per share. The key information follows. The tax rate is 50%. Plan A: Common stock: $200,000 Plan B: Bonds at 8%: $100,000; Common Stock: $100,000 Plan C: Preferred Stock at 8%: $100,000; Common Stock: $100,000. Interest on preferred stock must be paid each year. (a) Find out the EPS for each plan (b) Find out the financial break-even point for each plan
XYZ is expecting EBIT of $80,000. It is considering 3 financing plans. In each case, the common stock will be sold at $20 per share. The key information follows. The tax rate is 50%. Plan A: Common stock: $200,000 Plan B: Bonds at 8%: $100,000; Common Stock: $100,000 Plan C: Preferred Stock at 8%: $100,000; Common Stock: $100,000. Interest on preferred stock must be paid each year. (a) Find out the EPS for each plan (b) Find out the financial break-even point for each plan
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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XYZ is expecting EBIT of $80,000. It is considering 3 financing plans. In each case, the
common stock will be sold at $20 per share. The key information follows. The tax rate is 50%.
Plan A: Common stock: $200,000
Plan B: Bonds at 8%: $100,000; Common Stock: $100,000
Plan C:
must be paid each year.
(a) Find out the EPS for each plan
(b) Find out the financial break-even point for each plan
(c) Draw the EBIT-EPS graph
(d) Indicate over what EBIT range each plan is preferred.
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