A Company With Ebit Of 5 000 000 Is Considering Two Financing Alternatives The First Alternative Would Have 23 Millio 1 (49.6 KiB) Viewed 37 times
A Company With Ebit Of 5 000 000 Is Considering Two Financing Alternatives The First Alternative Would Have 23 Millio 2 (68.71 KiB) Viewed 37 times
A company with EBIT of $5,000,000 is considering two financing alternatives. The first alternative would have $23 million of bonds at 7% interest and 900,000 common shares outstanding, whereas the second would have $45 million of bonds at 7% interest and only 700,000 shares outstanding. The company is in the 35% tax bracket. Required: A. Construct the bottom half of the income statement (including EPS) for each financing alternative when EBIT is at $5,000,000. B. Construct the bottom half of the income statement (including EPS) for each alternative if EBIT increases by 25%. C. Construct the bottom half of the income statement (including EPS) for each alternative if EBIT decreases by 25%. D. What is the EBIT/EPS indifference point for this firm?
A B C D EBIT Interest Earnings before taxes Income tax Net income Number of shares outstanding Earnings per share EBIT Interest Earnings before taxes Income tax Net income Number of shares outstanding Earnings per share EBIT Interest Earnings before taxes Income tax Net income Number of shares outstanding Earnings per share Alternative #1 Alternative #! Alternative #I Alternative #2 Alternative #2 Alternative #2
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