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answer only if u know... otherwise 10 downvotes Yoyo Limited presently has 336,00,000 in debt outstanding bearing an interest rate of 10 per cent. It

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answer only if u know... otherwise 10 downvotes

Yoyo Limited presently has 336,00,000 in debt outstanding bearing an interest rate of 10 per cent. It wishes to finance a 340,00,000 expansion programme and is considering three alternatives: additional debt at 12 per cent interest, preference shares with an 11 per cent dividend, and the issue of equity shares at 316 per share. The company presently has 8,00,000 shares outstanding and is in a 40 per cent tax bracket. (a) If earnings before interest and taxes are presently 315,00,000, what would be earnings per share for the three alternatives, assuming no immediate increase in profitability? Develop an indifference chart for these alternatives. What are the approximate indifference points? To check one of these points, what is the indifference point mathematically between debt and common? (c) Which alternative do you prefer? How much would EBIT need to increase before the next alternative would be best? (b)

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