Biller Industries plc is a global haulage equipment and scaffolding manufacturer. The company has never

borrowed before but feels that, in order to maximize growth and increase value, a debt issue is required.

Currently the firm has $50$ million shares outstanding with a share price of $1\mathrm{.}50.$ The profit before taxes is

forecast to be $25$ million. Biller Industries requires $30$ million to fund its expansion plans. The firm feels

that it could borrow $45$ million and use the additional $15$ million to also buy back shares in the company.

The corporate tax rate is $18$ per cent.

$1$ Determine the expected earnings per share for the company before and after the debt issue. $(20$ marks$)$

$2$ Using your answer to part $(1),$ discuss the use of earnings per share as a basis for financial decision taking.

$(20$ marks$)$

$3$ Determine the value of Biller Industries plc after restructuring and the value of its equity using the

Modigliani$$Miller model with corporate taxes. $(15$ marks$)$

$4$ Determine the cost of equity for Biller Industries plc before and after the debt issue. $(15$ marks$)$

$5$ If the Miller $($debt and taxes$)$ model holds and capital gains tax is $28$ per cent, corporation tax is $18$ per cent

and personal tax rate on interest income is $45$ per cent, estimate the value of Biller Industries plc$.(15$ marks$)$

$6$ Determine the personal tax rate on interest income at which the tax advantage of debt is zero. $(15$ marks$)$