1. BASS Corp. Projects operating income of P4.0 million nest year. The firm income tax rate is 30%. BASS presently has 750,000 shares of common stock which have a market value of P10 per share, no preferred stock and no debt. The firm is considering two alternatives to finance a new product: a) the issuance of P6.0 million of 10% bonds, or b) the issuance of 60,000 additional new shares of common stock.

1. What will be the projected EPS next year if new common shares will be issued.
2. What will be the projected EPS next year if 10% bonds will be issued
3. What will be the firms ROE next year if the firm issues new common stock

2. Grasyade is excited to own a brand new Toyota car. Toyota is selling the for P1.2million. The required down-payment is 25% of the selling price. Bank is willing to finance the unit at 12% annual interest. Pepito wants to pay on a quarterly basis good for three years only.

1. How much is the quarterly payment of the loan for three years?
2. How much is the outstanding balance of the loan after paying for one year?

3. RIITAD, Inc. Is trying to decide how best to finance a proposed P10 million capital investment. Under plan A , the project will be financed by entirely with long term 9% bonds. The firm currently has no debt or preferred stock. Under plan B, Common stock will be sold to net the firm P20 per share; presently one million shares are outstanding. The corporate tax is 40%.

1. Calculate the indifference level of EBIT associated with the two financing plans (an EBIT that both financing plans have the same EPS)
2. If EBIT expected to be P3.10 million, which plan will result in higher EPS?