Compute earnings per share before the expansion

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How do you calculate the cost of interest for each plan? The Lopez-Portillo Company has $10.9 million in assets, 90 percent financed by debt, and 10 percent financed by common stock. The interest rate on the debt is 6 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to $19.5 million in assets

Under Plan A, the debt-to-total-assets ratio will be maintained, but new debt will cost a whopping 7 percent! Under Plan B, only new common stock at $10 per share will be issued. The tax rate is 40 percent

a. If EBIT is 7 percent on total assets, compute earnings per share (EPS) before the expansion and under the two alternatives

Reference no: EM131047570

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