Problem $15$

Resort Hotels, Inc., is starting operations by raising $$30$ million. Earnings before Interest and Taxes are expected to be $$20$ million this year. The company has a $30$ percent tax rate.

Required:

Calculate Earnings after Tax and Dividends under each of the following two financing options:

Bond financing: $$20$ million at $7$ percent interest

Stock financing: $$20$ million with $8$ percent annual dividend