Reference no: EM132595919

Moses Company has a total asset of 400,000 of which 30% is debt with 12% interest and

70% is equity. This is the current capital structure and Moses earns EBIT of br. 40,000.

However, Moses panned to get involved in investment of br. 100,000 that would increase

his current income from br. 40,000 to br. 60,000. To mobilize br. 100,000 required for

invest assume the following two options are available

A. Issuing shares of 1000 each at br. 100

B. Selling bond costing br. 100,000 that bears interest rate of 12.5%

Given the above data and assuming that there is no preferred stock in capital structure

Question I. Determine optimal capital structure

Question II. Calculate degree of financial leverage taken into account 50% tax rate

Question III. Calculate EBIT and EPS at breakeven point

Question IV. Decide whether pan A or plan B is better