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Determine the value of Biller Industries plc

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Reference no: EM133100963

Question - Biller Industries plc is a global haulage equipment and scaffolding manufacturer. The company has never borrowed before but feels that in order to maximize growth and increase value, a debt issue is required. Currently the firm has 50 million shares outstanding with a share price of £1 .50. The profit before taxes is forecasted to be £25 million pounds. Biller Industries requires £30 million to fund their expansion plans. The firm feels that they could borrow £45 million and use the additional £15 million to also buy back shares in the company. The corporate tax rate is 23%.

Required -

a. Determine the expected earnings per share for the company before and after the debt issue.

b. Using your answer to part a., discuss the use of earnings per share as a basis for financial decision taking.

c. Determine the value of Biller Industries plc after restructuring and the value of its equity using the Modigliani-Miller model with corporate taxes.

Reference no: EM133100963

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