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Question 1 (CLO-C2, Marks 8) Emirates Corporation planning to commerce a new business project in near future. The investment required for the proposed project is
Question 1 (CLO-C2, Marks 8) Emirates Corporation planning to commerce a new business project in near future. The investment required for the proposed project is $30 million. The company prepared 4 financial plans for its capital structure as given below. Suppose you are the accounts manager of the corporation. If the management seeks your expert opinion for the selection of the best plan for financing the project, which of the following plan will you suggest as the best alternative for the corporation? Emirates Corporation is considering the following plans to issue debt and equity Plan 1 Plan 2 Capital Plan 3 Plan 4 Portfolio Amount % Amount % Amount % Amount % ($) ($) ($) ($) 12% Bonds 0% 0% 10,000,000 33.33% 15,000,000 50% 10% Preferred 0% Stock 15,000,000 50% 10,000,000 33.33% 7,500,000 25% Common Stock, $1000 30,000,000 100% 15,000,000 50% 10,000,000 33.33% 7,500,000 25% par value Total 30,000,000 100% 30,000,000 100% 30,000,000 100% 30,000,000 100% Other Information: a) Earnings before interest and taxes are $6,000,000. b) The tax rate is 40%. c) All bonds or stocks are issued at their par or face value. Instructions 1. What you mean by Earnings per Share? 2. How does it Calculated? 3. Compute the potential impact of long-term borrowing on earnings per share using the following details. 4. Select the best alternative. Justify the reasons for the selection. 5. If the earnings are 3,300,000, will you change your decision
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