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What would be earning per share for the three alternatives

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A company presently has $3 million in debt outstanding, bearing an interest rate of 12%. It wishes to finance a $4 million expansion program and is considering three alternatives: additional debt at 14% interest (option 1), preferred stock with a 12% dividend (option 2), and the sale of common stock at $16 per share (option 3). The company presently has 800,000 shares of common stock outstanding and is in a 40% tax bracket.

Question a. If earnings before interest and taxes are presently $1.5 million, what would be earning per share for the three alternatives, assuming no immediate increase in operating profits?

Reference no: EM132627467

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