Vapid Motors Inc. is currently all-equity financed with 1,391,369M shares outstanding. Vapid wants to raise $3.5M...
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Vapid Motors Inc. is currently all-equity financed with 1,391,369M shares outstanding. Vapid wants to raise $3.5M in new funds and is considering two financing options. Option A is all equity. Vapid will issue new shares at $7 per share. Option B is debt financing. Vapid will borrow the money at an interest rate of 12.4%. The tax rate is 49%. Use this information to answer the following questions. Part 1 What is the EBIT-EPS indifference level? Part 2 If Vapid expects an EBIT of $2.3M, which capital structure should it select to maximize EPS? Vapid Motors Inc. is currently all-equity financed with 1,391,369M shares outstanding. Vapid wants to raise $3.5M in new funds and is considering two financing options. Option A is all equity. Vapid will issue new shares at $7 per share. Option B is debt financing. Vapid will borrow the money at an interest rate of 12.4%. The tax rate is 49%. Use this information to answer the following questions. Part 1 What is the EBIT-EPS indifference level? Part 2 If Vapid expects an EBIT of $2.3M, which capital structure should it select to maximize EPS?
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Answer rating: 100% (QA)
Part 1 The EBITEPS indifference level is the EBIT level at which the EPS is the same for both financ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
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