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borteleto borteleto
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5 years ago
Balon Plastics, Inc. is trying to decide how best to finance a proposed $10,000,000 capital investment. Under Plan I, the project will be financed entirely with long-term 9 percent bonds. The firm currently has no debt or preferred stock. Under Plan II, common stock will be sold to net the firm $20 a share; presently, 1,000,000 shares are outstanding. The corporate tax rate for Balon is 40 percent.
a.Calculate the indifference level of EBIT associated with the two financing plans.
b.Prepare an EBIT-EPS analysis chart, showing the intersection of the two financing plan lines.
c.Which financing plan would you expect to cause the greatest change in EPS relative to a change in EBIT? Why?
d.If EBIT is expected to be $3.1 million, which plan will result in a higher EPS?
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guzmanguzman
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5 years ago
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borteleto Author
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#2
5 years ago
Commenting just to show my support for informative posts like this, keep it up 10/10
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#3
5 years ago
That helps more than you thinks, thanks for being so thoughtful
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