Scott's company is looking at expanding into a new territory and needs to evaluate various financing plans. Below are the characteristics of each plan:
Plan A: Scott's company will sell 1,000,000 shares of common
stock at a market price of $15 each
Plan B: Scott's company will sell $15,000,000 of long-term debt at
a rate of 12%
Additional characteristics of Scott's company that you need to be aware of:
-Marginal tax rate of 35%
-Currently 10,000,000 shares of stock outstanding
What is the EBIT-EPS indifference point?
Ans
EBIT - EPS In difference point is $19,800,000
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