Reference no: EM132598457

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 $ 100,000 that would increase his current income from $ 40,000 to $ 60,000. To mobilize $ 100,000 required for invest assume the following two options are available

A. Issuing shares of 1000 each at $ 100

B. Selling bond costing $ 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 A. Determine optimal capital structure

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

Question C. Calculate EBIT and EPS at breakeven point

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