The Lopez-Portillo Company has $10.3 million in assets, 70 percent financed by debt and 30 percent...

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The Lopez-Portillo Company has $10.3 million in assets, 70 percent financed by debt and 30 percent financed by common stock. The Interest rate on the debt is 12 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to $16.5 million in assets. Under Plan A, the debt-to-total-assets ratio will be maintained, but new debt will cost a whopping 14 percent! Under Plan B, only new common stock at $10 per share will be issued. The tax rate is 40 percent. a. If EBIT is 13 percent on total assets, compute earnings per share (EPS) before the expansion and under the two alternatives. Note: Round your answers to 2 decimal places. Current Plan A Plan B Earnings per Share b. What is the degree of financial leverage under each of the three plans? Note: Round your answers to 2 decimal places. Current Plan A Plan B Degree of Financial Leverage c. If stock could be sold at $20 per share due to increased expectations for the firm's sales and earnings, compute earnings per share for each alternative. Note: Round your answers to 2 decimal places. Earnings per Share Plan A Plan B The Lopez-Portillo Company has $10.3 million in assets, 70 percent financed by debt and 30 percent financed by common stock. The Interest rate on the debt is 12 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to $16.5 million in assets. Under Plan A, the debt-to-total-assets ratio will be maintained, but new debt will cost a whopping 14 percent! Under Plan B, only new common stock at $10 per share will be issued. The tax rate is 40 percent. a. If EBIT is 13 percent on total assets, compute earnings per share (EPS) before the expansion and under the two alternatives. Note: Round your answers to 2 decimal places. Current Plan A Plan B Earnings per Share b. What is the degree of financial leverage under each of the three plans? Note: Round your answers to 2 decimal places. Current Plan A Plan B Degree of Financial Leverage c. If stock could be sold at $20 per share due to increased expectations for the firm's sales and earnings, compute earnings per share for each alternative. Note: Round your answers to 2 decimal places. Earnings per Share Plan A Plan B

Answer rating: 100% (QA)

a Earnings per Share EPS Current EBIT 13 of 103 million 1339 million Interest 12 of 721 million 70 o... View the full answer