Two financial alternatives for financing a major expansion

Reference no: EM13710118

Twin City Printing is considering two financial alternatives for financing a major expansion program. Under either alternative EBIT is expected to be $15.6 million. Currently the firm's capital structure consists of 4 million shares of common stock and $35 million in 11% long-term bonds. Option 1 is to finance with $10 million in 12% long-term bonds while under Option 2 the firm would sell 500,000 shares of common stock. The P/E under Option 1 would be 15 and 16 under Option 2. The firm's tax rate is 40%. (i) What is the EBIT indifference point between the two financing options?

Reference no: EM13710118

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