8. Klinger's Clothiers is considering expanding the production of a new line of women's clothing and...

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8. Klinger's Clothiers is considering expanding the production of a new line of women's clothing and is examining two different financing plans to raise the requisite $4,000,000. The first plan (all equity) involves the sale of 200,000 new shares at $20 each. The second plan (50% equity, 50% debt) involves the sale of 100,000 new shares at $20 each and 2,000 12% coupon, 20-year bonds at par. In either case, annual fixed costs will be $2,000,000, the average cost per unit produced will be $15, and the average price per unit produced will be $50. Klinger currently has 400,000 shares outstanding and has a 25% tax rate. a) Find net profit after taxes, earnings per share, and DFL if the expected sales level is 70,000 units. b) At what level of sales (in units) will earnings per share be equal under either plan? 8. Klinger's Clothiers is considering expanding the production of a new line of women's clothing and is examining two different financing plans to raise the requisite $4,000,000. The first plan (all equity) involves the sale of 200,000 new shares at $20 each. The second plan (50% equity, 50% debt) involves the sale of 100,000 new shares at $20 each and 2,000 12% coupon, 20-year bonds at par. In either case, annual fixed costs will be $2,000,000, the average cost per unit produced will be $15, and the average price per unit produced will be $50. Klinger currently has 400,000 shares outstanding and has a 25% tax rate. a) Find net profit after taxes, earnings per share, and DFL if the expected sales level is 70,000 units. b) At what level of sales (in units) will earnings per share be equal under either plan?

Answer rating: 100% (QA)

a For the first plan the total cost of producing 70000 units is Total cost 70000 units x 15unit 2000000 3050000 The total revenue from selling 70000 u... View the full answer