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Levered (2) Company Inc. intends to raise $8 million for plant expansion. The company has an option of financing by way of either an equity
Levered (2) Company Inc. intends to raise $8 million for plant expansion. The company has an option of financing by way of either an equity issue (new shares), by selling shares at $50 per share or through a bond issue (debt financing) bearing an annual interest of 12%. The company's current capital structure consists of $20,000,000 in debt bearing 8% interest and $25,000,000 in equity. New capital injection will increase company's operating profits by 10%. ho Fill out the columns below for the proposed debt and equity scenarios, which include completing information on the company's capital structure, shares, income statement, EPS, ROE, and Times Interest Earned (to facilitate computation, first copy the information below into Excel: second, complete the table in Excel: third, paste it from Excel into the text box below). Debt Equity Shares Financing Scenarios Current Debt Equity 20,000,000 25,000,000 500,000 ws Operating profit Interest expense Earnings before tax Income tax @ 30% Net income EPS $10,000,000 1,600,000 8,400,000 2,520,000 5,880,000 $11.76 EPS ROE Times Interest Earned Se B Paragrapa A IU
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