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please help with A and B. Question #4 (18.5 marks) Priyal's Pottery Shop has $1,500,000 in assets, 80% of which is financed by debt and
please help with A and B.
Question #4 (18.5 marks) Priyal's Pottery Shop has $1,500,000 in assets, 80% of which is financed by debt and 20% by common stock. The interest rate on the debt is 8%, and the stock book value is $10 per share. Priyal is considering two financing plans to grow the company to $2,000,000 in assets. Plan A would maintain the debt-to-total assets ratio, but new debt will cost 12%. New stock will be sold for $10 per share. Plan B would issue new common stock only at $10 per share. The tax rate is 25%. a) If EBIT is 25% of total assets, compute EPS before and after company growth under each alternative (16.5 marks) Priyal's - Current (5.5 marks) Plan A (5.5 marks) Plan B (5.5 marks) b) Calculate the EBIT/EPS indifference point ( 2 marks) Step by Step Solution
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