The Lopez-Portillo Company has $10.6 million in assets, 80 percent financed by debt, and 20 percent financed

Question:

The Lopez-Portillo Company has $10.6 million in assets, 80 percent financed by debt, and 20 percent financed by common stock. The interest rate on the debt is 9 percent and the of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to $18 million in assets.
Under Plan A, the debt-to-total-assets ratio will be maintained, but new debt will cost a whopping 12 percent! Under Plan B, only new at $10 per share will be issued. The tax rate is 40 percent.
a.) if EBIT is 9% on total assets, compute earnings per share before the expansion and under the two alternatives.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...