ASSET= Php 1,500,000 LIABILITIES= Php 200,000 SHE= Php 1,300,000 There are 10,000 shares outstanding, par value of
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ASSET= Php 1,500,000
LIABILITIES= Php 200,000
SHE= Php 1,300,000
There are 10,000 shares outstanding, par value of Php 100 per share. The company is evaluating a project proposal requiring additional capital of Php 500,000 so as to increase its operating income by Php 200,000.
Two alternative solutions have been presented:
- Borrow the Php 500,000 from a bank at 18%
- Issue additional 2,500 shares of capital stock at the market price of Php 200 per share.
The tax rate is 32%
1) Which option is more preferred?
2) How much is the cost of capital?
3) How much is the tax benefit?
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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