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Please answer only letters e and f. Thank you! 3. Pioneer Company has a 10 Million Pesos in debt outstanding bearing an interest rate of
Please answer only letters e and f. Thank you!
3. Pioneer Company has a 10 Million Pesos in debt outstanding bearing an interest rate of 6%. It wishes to finance a 10 million expansion and is considering three options: Option 1. Additional debt at 8% interest, Option 2 Preferred stock with a 12 % dividend rate, Option 3 Sale of Common stock m 20 pesos /share. The company presently has million shares of common stocks outstanding and has a 40% tax bracket. If earnings before interest and taxes is 4 million. Find the following: (Answers should be rounded off to two decimal places.) a. How much interests are to be paid for Option 1? b. How much dividends are to be paid for Option 2? c. How much will be the EBIT @ EPS=0 for Option 3? d. Compute for the EPS @ EBIT = 4 M for Option 2 e. How much value of EBIT will be the indifference point of the Options 2 and 3? f. What Option is best for the company? WhyStep by Step Solution
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