Share for the company before and after the debt issue

Assignment Help Financial Management

Reference no: EM131929004

Mega plc is a global oil exploration company and operates in several different countries . 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 6 0 million shares outstanding with a share price of £ 2 . The profit before taxes is forecast to be £ 30 mi llion . The firm requires £ 4 0 million to fund its expansion plans. The firm feels that it could borrow £ 50 million and use the additional £1 0 million to also buy back shares in the company. The corporate tax rate is 2 5 % .

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

b) Determine the value of Mega plc after restructuring and the value of its equity using the Modigliani – Miller model with corporate taxes.

c) Using your answer for question (a) , discuss the use of earnings per share as a basis for financial decision taking.

Reference no: EM131929004

Questions Cloud

How many rights will it take to buy one share : If the subscription price is set at £ 2 0 per share, how many shares must be sold? How many rights will it take to buy one share?

Domar growth model in the role that population growth : Contrast how the Endogenous growth theory differs from the Harrod-Domar growth model in the role that population growth plays in per capita income.

Can standardized processes really work in a setting : As health care looks at continuous improvement (as done in manufacturing), one of the most prominent questions that has arisen is.

Propose a photography company : The company should be customer-focused with an innovative mission statement. Ensure you are differentiating your product or service.

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

Personal reflection of own values to cultural safety : Personal Reflection of own values and attitudes to cultural safety in the provision of health care for Aboriginal and Torres Strait Islander peoples

What kind of money is in what the fed calls m1 : The Federal Reserve has different "kinds" of money that they keep track of. So what kind of money is in what the Fed calls M1? M0?

Discuss the five areas of cultural importance for leaders : Human resources must acknowledge that they may possibly by managing according to their own moral code of ethics, which may not be the sociopolitical norms.

Write a term paper about the topic sexual harassment : Write a Term paper about the topic Sexual harassment in the work place.

User Account

All Pages