Question
Milestone Co. analyzing two financial plan for their newly form subsidiary. The plans are described as follows: Plan I Plan II Bonds at 11%, value
- Milestone Co. analyzing two financial plan for their newly form subsidiary. The plans are described as follows:
| Plan I | Plan II |
| Bonds at 11%, value RM402,500 Common stock: market value RM107,950 | Bonds at 11%, value RM280,000 Common stock: market value RM152,400 |
The market price of the stock is RM12.70 and the corporate tax rate is 34 percent.
Required:
- Find the EBIT EPS indifference level associated with the two financing plans.
- Prepare a pro forma income statement if the earnings before interest and taxes (EBIT) is expected to be RM175,000. Which financing plan should be selected and why?
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Accounting
Authors: Michael J. Jones
3rd Edition
1119977185, 9781119977186
