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10. UFI Labs Inc. ("UFI") has $10 million in assets, $3 million in short-term liabilities, $ 3 million in long term liabilities, $4 million of equity, EBIT of $1,000,000, share price currently trading at $20, tax rate of 30%. UFI is considering investing in a new plant costing $4 million. Expected increase in earnings before interest and taxes due to the investment is $800,000 per year. The company wants to see the financial results for UFI if the new investment is financed using entirely equity or 50% equity and 50% debt. Lenders will be charging 11% annual on any new debt. A: Complete a financial analysis of the two financing options that clearly shows the benefits, or costs, of making this investment. Complete your analysis using only one year's financial projections. (3 Marks) 4 4 B: What is your recommended course of action, and why? (1 Mark)