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Please answer it carefully with proper explanition. The LP company has $ 1 0 million in assets, 8 0 % financed by debt and 2
Please answer it carefully with proper explanition.
The LP company has $ million in assets, financed by debt and financed by common stock. The interest rate on the debt is and the stock book value is $ per share. LP is considering two financing plans for an expansion to $ million in assets. Under plan A the debttototalasset ratio will be maintained, but new debt will cost New common stock will be sold at $ per share. Under plan B only new common stock at $ per share will be issued. The tax rate is
a Calculate the EBITEPS indifference point.
b If EBIT is expected to be of total assets, compute the EPS under the two expansion alternatives?
c Would you have expected the results you get in part b from your calculation of EBIT indifference in part a Briefly explain.
d Instead of Plan B raising new financing with common shares if the company decided they should raise only half the amount needed by issuing common shares at $ each and finance the remainder of the project with preferred shares, what would the indifference point be
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