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The management of BTS corp is planning a $120,000 expansions this year. The expansion can be financed by issuing either common stocks or bonds. The
The management of BTS corp is planning a $120,000 expansions this year. The expansion can be financed by issuing either common stocks or bonds. The new common stocks can be sold for $80 per share. The bonds can be issued with a 9% coupon rate. The company's existing preferred stocks pay dividends of $1.50 per share. The company corporate income tax is 25%. The balance sheet of BTS Corp is as follows: BTS Corp. Balance Sheet as at 31 December 2020 Current Assets $ 20,000 Fixed Assets 18.000 Total Assets 38,000 1,500 Current Liabilities Bonds: (8%, $1,000 par value) (10%, $1,000 par value) 10,000 10,000 Preferred Stocks: ($100 par value) 15,000 700 Common Stocks: (52 par value) Retained Earnings Total Liabilities and Equities 800 38,000 a. Calculate the indifference point of EBIT-EPS between the two financing plans. b. Prepare an EBIT-EPS analysis chart for this situation
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