Question
A company has 52 million common shares outstanding worth $1/share and $75 million of debt with an interest rate of 6.5%. The company wants to
A company has 52 million common shares outstanding worth $1/share and $75 million of debt with an interest rate of 6.5%. The company wants to raise another $40 million. It can do so by selling additional shares of common stock (the equity plan; assume the price per share will stay the same). Alternatively, it can out a bank loan with an interest rate of 8.9% (the debt plan). The company has no preferred stock. The corporate tax rate is 25%. At what level of EBIT would the company have the same earnings per share (EPS) under either plan? Specify the answer in $ mln., to the nearest $0.01 mln., drop the $ symbol.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started