FINA 476
Financial Management
Homework Problems (30 points) due by Tuesday November 8
1. (5) Roberts Inc. is trying to decide how best to finance a proposed $10 million capital investment. Under Plan I the project will be financed entirely with long-term 9% bonds. The firm currently has no debt or preferred stock. Under Plan II common stock will be sold to net the firm $20 a share. Presently the firm has 1 million shares are outstanding. The corporate tax rate for Roberts is 40%.
Prepare an EBIT-EPS analysis chart showing the intersection of the two financing plan lines by calculating the indifference level of EBIT (& EPS) associated with the two financing plans.
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