Exercise 1.FINSTRAL SL has identified 3 financing plans for a necessary investment of EUR 500,000:

Plan A raising 100 new shares at EUR 10 each,

Plan B contracting a loan of EUR 150,000 at a 6% interest rate, and

Plan C contracting a loan of EUR 300,000 at a 6% interest rate.

The companys common equity is of EUR 500,000 and its corporate tax rate is 24%.

What would be the change in percentage of the EPS for each plan with an EBIT of EUR 50,000 and of EUR 100,000, considering that the number of outstanding shares is currently 1,500?

Which plan presents the higher change in percentage in EPS?

FINSTRAL SLs chose plan B and generated positive earnings, hence its decision to distribute all earnings (net income) plus a cash dividend of EUR 2 to all shareholders.

Computing indifference points, what would be the break-even level of EBIT and EPS for both plan A and B?

From a shareholder point of view and according to the dividend payout ratios you have calculated, which plan would you have preferred the company to chose, and at which level of EBIT?

Calculate the tax shield for both plan B and C