Currently, Company ABC has the following financial parameters EBIT $ 8 MM Debt $ 20 MM Interest rate 5 Tax rate 35 Number of common shares outstanding 10 MM Share price $ 10 per share The company would like to raise $ 30 MM for future capital expansion via an issue of common shares For the project to go ahead, the projected EPS has to increase by 10 or more compared to its present value To meet such an improvement, the expected EBIT has to increase by at least X compared to its current value What is X a X 33 b X 30 c X 42 d X 29 e X 38 If the entire financing has to come from debt to achieve the same improvement on EPS and the interest rate stays the same as before, then the EBIT for this financing would be a $ 9,500,000 b $ 9,700,000 c $ 10,000,000 d $ 10,200,000 e $ 10,500,000

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Posted on Oct 04, 2024

Currently, Company ABC has the following financial parameters: EBIT = $ 8 MM Debt = $ 20 MM Interest rate = 5% Tax rate =

Currently, Company ABC has the following financial parameters: EBIT = $ 8 MM Debt = $ 20 MM Interest rate = 5% Tax rate = 35% Number of common shares outstanding = 10 MM Share price = $ 10 per share The company would like to raise $ 30 MM for future capital expansion via an issue of common shares. For the project to go ahead, the projected EPS has to increase by 10% or more compared to its present value.

To meet such an improvement, the expected EBIT has to increase by at least X % compared to its current value. What is X ?
a. X = 33

b. X = 30

c. X = 42

d. X = 29

e. X = 38

If the entire financing has to come from debt to achieve the same improvement on EPS and the interest rate stays the same as before, then the EBIT for this financing would be:

a. $ 9,500,000

b. $ 9,700,000

c. $ 10,000,000

d. $ 10,200,000

e. $ 10,500,000