Apple Inc. is planning to expand its operations in a new market. This project requires $10 million
Question:
Apple Inc. is planning to expand its operations in a new market. This project requires $10 million investment. Apple Inc. management has been considering the possibility of DEBT FINANCING for the first time, it might have looked at CPQ Inc. as a benchmark firm for comparison purposes. Currently, the management is analyzing three alternatives for Debt –Equity mix in order to optimize its capital structure.
Taking $ 10 per share value, show the EBIT & EPS calculations, evaluate debt financing of Apple Inc. and suggest the best alternative capital mix to the company.
TOTAL FUNDS REQUIRED | $ 10,000,000 |
Interest rate | 10% p.a. |
Tax rate | 30% |
EBIT | $4,000,000 |
DEBT(Borrowed Funds) | |
Plan A : Situation I | 0% Debt |
Plan B: Situation II | 25% Debt |
Plan C: Situation III | 50% Debt |
Expert Answer:
First we need to calculate the interest expense for each plan Plan A Situation I 0 Debt Interest Exp... View the full answer
