Which plan will generate the higher eps

Reference no: EM13276248

Three recent graduates of the computer science program at the University of Tennessee are forming a company that will write and distribute new application software for the Iphone. Intially the corporation will operate in the southern region of Tennessee,Georgia,North Carolina, and South Carolina. A small group of private investors in the Atlanta Ga area is interested in finacing the startup company and two financing plans have been put forth for consideration. The first (Plan A) is an all common equity capital structure $2.2 million dollars would be raised by selling common stock at $20 per common share. Plan B would involve the use of financial leverage $1.2 million dollars would be raised by selling bonds with an effective interest rate of 10.6% (per annum) , and the remaining $1.0 million would be raised by selling common stock at $20 price per share. The use of financial leverage is consider to be a permanent part of the firm's capitalization, so no fixed maturity date is needed for the analysis. A 30% tax rate is deemed. A.Find the EBIT indifference level associate with the two financing plans. B. A detailed financial analysis of the firm's prospects suggests that the long term EBIT will be above $315,000 annually. Taking this into consideration, which plan will generate the higher EPS?

Reference no: EM13276248

Questions Cloud

State what is the rate constant for the first order reaction : The reaction for the decomposition of dinitrogen monoxide gas to form an oxygen radical is: N2O--->N2 + O2. If the activation energy is 250 kj/mol and the frequency factor is 8.0 x 10^11 s^-1, what is the rate constant for the first order reaction..

What are the portfolio weights : f a portfolio of the two assets has a beta of 2.26, what are the portfolio weights? How do you interpret the weights for the two assets in this case? Explain.

What is the expected return on an equally weighted portfolio : What is the expected return on an equally weighted portfolio of these three stocks? b. What is the variance of a portfolio invested 20 percent each in A and B, and 60 percent in C?

Explain the concentration of so42 : The concentration of SO42- (aq) in a sample of river water can be determined using a precipitation titration in which a salt of Ba+ (aq) is the standard solution and BaSO4 (s) is the precipitate formed. What is the concentration of SO42- (aq) in a..

Which plan will generate the higher eps : A detailed financial analysis of the firm's prospects suggests that the long term EBIT will be above $315,000 annually. Taking this into consideration, which plan will generate the higher EPS?

Pros and cons of the research method : what the effects of electronic games on children - What were pros and cons of the research method(s) that was/were used and was the topic significant and relevant to education? Why/why not?

What will these bonds sell for at issuance : Using the IRS amortization rule, what interest deduction can the company take on these bonds in the first year? In the last year? c. Repeat part (b) using the straight-line method for the interest deduction.

Give the weights and frequencies of all components : An AM modulator operates with the message signal: m(t) = 9 cos(20πt) - 8 cos(60πt). The unmodulated carrier is given by 110 cos(200πt), and the system operates with an index of 1/2. a. Write the equation for mn(t), the normalized signal with a mini..

What would fantasty new required return be : Now the required return on an average stock increases by 30.0% (not percentage points). Neither betas nor the risk-free rate change. What would Fantasty 's new required return be?

User Account

All Pages