Difference level associated with the two financing plans

Assignment Help Financial Accounting

Reference no: EM133494845

Case: Geler co. now has an investment plan which needs 8 million dollars. The company has two financing proposals.

Plan A is to borrow $2million at 10% and $6 million will need to sell stocks at $40 per common share. Plan B would involve a higher financial leverage. $4 million would be raised by selling bonds with an interest rate of 10% and the remaining $4 million would be raised by selling common stock at the $40 price per share. The corporate tax rate is 25%.

Question (1) Find the EBIT indifference level associated with the two financing plans.

Question (2) If a detailed financial analysis projects that long-term EBIT will be in the range of $1 million to 1.5 million annually, which plan will generate higher EPS?

Question (3) If the fixed cost is $500,000, please calculate DOL, DFL and DCL at the point of EBIT being $1 million under plan B.

Reference no: EM133494845

Questions Cloud

Concept of keeping up with the joneses : Explain the concept of "keeping up with the Joneses" and name at least two examples of things people do that illustrate this concept.

Discuss the twelve objectives of accounting : Discuss the twelve objectives of accounting and the four information needs of users as outlined by the Trueblood Committee.

Analyze population health-oriented policies : Analyze population health-oriented policies (such as non-discrimination in hiring, care and treatment, Patient Bill of Rights, financial assistance, etc.)

What ways was the black freedom struggle : In what ways was the Black freedom struggle, or the Civil Rights Movement, part of a global movement for human rights after World War II?

Difference level associated with the two financing plans : If a detailed financial analysis projects that long-term EBIT will be in the range of $1 million to 1.5 million annually, which plan will generate higher EPS

What beliefs characterized manifest destiny : What beliefs characterized Manifest Destiny? What did the Monroe Doctrine provide for? How were these two policies related to one another?

What historians havewritten about a topic : what historians havewritten about a topic. You may choose course readings as well as outside sources.Topic and sources must be consulted with the instructor.

Relationship between native americans and the british : According to Neolin, how has the presence of non-natives affected the lives of Native Americans?

Which study or analysis was your favorite : why is it in an agents best interest to sell right away rather than wait for a better offer? Which study/analysis was your favorite?

User Account

All Pages