There are two alternatives of capital structure available for the firm, one is to have $500,000 equity share capital and 11% debentures of $300,000. The other alternative is to have equity share capital of $400,000; 13% preference share capital of $200,000; and 11% debentures of $300,000. The tax rate is 30% and the par value per equity share is $10. Calculate the earnings before interest and taxes at which earnings per share is indifferent among the above alternatives.
There are two alternatives of capital structure available for the firm, one is to have $500,000 equity share capital and 11% debentures of $300,000. The other alternative is to have equity share capital of $400,000; 13% preference share capital of $200,000; and 11% debentures of $300,000. The tax rate is 30% and the par value per equity share is $10. Calculate the earnings before interest and taxes at which earnings per share is indifferent among the above alternatives.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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There are two alternatives of capital structure available for the firm, one is to have $500,000 equity share
capital and 11% debentures of $300,000. The other alternative is to have equity share capital of $400,000;
13%
value per equity share is $10. Calculate the earnings before interest and taxes at which earnings per share is
indifferent among the above alternatives.
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