week4/6 4 recent graduates of the computer sci program at the university of Mich
ID: 2693051 • Letter: W
Question
week4/6 4 recent graduates of the computer sci program at the university of Michigan are forming a company that will write and distribute new application software for the iphone. Initially,the corporation will operate in the southern region of Michigan, Georgia ,and Tennessee small group of private investors in Atlanta are interested in financing the start up company and two financing plans have been put fourth for consideration.PLAN A is an all-common equity capital structure.$2.4 million dollars would be raised by selling common stock at $20 per common share.PLAN B would involve the use of leverage.$1.4 million dollars would be raised by selling bonds with n effective interest rate of 10.9%(per annum).and the remaining $1.0 million would be raised be selling common stock at the $20 price per share.The use of financial leverage is considered to be a permanent part of the firms capitalization,so no fixed maturity date is needed for the anaylsis. A 35% tax rate is deemed appropriate for the analysis.FIND THE EBIT INDIFFERENCE LEVEL ASSOCIATED WITH THE TWO FINANCING PLANS$261600_______(round to the nearest dollar) (PART B) a detailed financial analysis of the firms prospects suggests that the long-term ebit will be above $336,000 anually.Taking this into consideration,which plan will generate the higher eps? complete the segment of the income statement for plan a below(round income statement amounts to the nearest dollar except the eps on the nearest cent) (THE STOCK PLAN) ebit$______, less:interest exspense______ earnings before taxes$______ less:Taxes at 35%______ net income$_______ number of ommon shares______ eps$__________Explanation / Answer
PART B
Please not the question's requirement: a detailed financial analysis of the firms prospects suggests that the long-term ebit will be above $336,000 anually.Taking this into consideration,which plan will generate the higher eps?
Below is the correct answer, trust me, just put that into your computer and see what its saying..
Plan A:
EBIT 336,000
Less int 0
EBT 336000
EAT 218400
no of shares 120000
EPS= 1.82
PLAN B:
EBIT 336000
Less int: 152600
EBT 183400
EAT 119210
no of shares 50000
EPS 2.384
Therefore, EPS will me more in plan B if the ebit is above $336,000 anually
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.