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PSO has decided to invest Rs.100,000,000 in a new headquarters in Karachi and needs to determine the best way to finance the entire construction. PSO
PSO has decided to invest Rs.100,000,000 in a new headquarters in Karachi and needs to determine the best way to finance the entire construction. PSO currently has Rs.500,000,000 of 10 percent bonds and 40,000,000 common shares outstanding. The PSO can obtain the Rs.100,000,000 of financing through a 10 percent bond issue or the sale of 10,000,000 shares of common stock. The firm has a 40 percent tax rate.
i) What is the degree of financial leverage for each plan at Rs.250,000,000 of EBIT?
ii) What is the financial breakeven point for each plan?
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