The Lopez-Portillo Company has $11.2 million in assets, 60 percent financed by debt and 40 percent...

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The Lopez-Portillo Company has $11.2 million in assets, 60 percent financed by debt and 40 percent financed by common stock. The interest rate on the debt is 9 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to $21 million in assets. Under Plan A, the debt-to-total-assets ratio will be maintained, but new debt will cost a whopping 12 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 10 percent on total assets, compute earnings per share (EPS) before the expansion and under the two alternatives. (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? (Round your answers to 2 decimal places.) The Lopez-Portillo Company has $11.2 million in assets, 60 percent financed by debt and 40 percent financed by common stock. The interest rate on the debt is 9 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to $21 million in assets. Under Plan A, the debt-to-total-assets ratio will be maintained, but new debt will cost a whopping 12 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 10 percent on total assets, compute earnings per share (EPS) before the expansion and under the two alternatives. (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? (Round your answers to 2 decimal places.)

Answer rating: 100% (QA)

To calculate the earnings per share EPS before the expansion and under the two financing alternatives Plan A and Plan B we first need to determine the ... View the full answer