What are the earnings per share under each estimated level of EBIT if shares are issued?

What are the earnings per share under each estimated level of EBIT if debt is used?

What are the expected earnings per share under each alternative?

What is the coefficient of variation of EPS under each alternative?

 

ABC Company have raised funds from the following sources: 9.5% debentures $80,000 8% preference shares $10,000 Ordinary shares fully paid to $1 $5,000 Earnings before interest and taxes are currently $16,000. The company is required to raise $20,000 for expansion and is considering either issuing more ordinary shares at a market value of $1.60 or offering 11.5% debentures. The following estimates of earnings before interest and taxes have been calculated if the expansion proceeds. EBIT ($000s) 15 18 20 25 Tax is 30% on profits. Probability of occurrence 0.10 0.25 0.45 0.20