You work for the CEO of a new company that plans to manufacture and sell a new type of laptop computer The issue now is how to

Question

You work for the CEO of a new company that plans to manufacture and sell a new type of laptop computer The issue now is how to finance the company with only equity or with a mix of debt an equity Expected operating income is 600 000 Other data for the firm are shown below How muc higher or lower will the firm s expected EPS be if it uses some debt rather than only equity i e wh EPSLEPSU Oper income EBIT Required investment Debt S of Debt of Common equity Shares issued 10 share Interest rate Tax rate Required investment Debt of Debt S of Common equity Shares issued at 10 share Interest rate Tax rate Operating income EBIT Interest Taxable income Taxes Net Income Earnings per share EPS Difference in EPS Fill in D42 G46 and G48 0 Debt U 2 500 000 0 00 0 2 500 000 250 000 n a 35 00 600 000 60 Debt L 0 0 Debt U 600 000 2 500 000 0 0 0 00 2 500 000 250 000 NA 35 2 500 000 60 00 1 500 000 1 000 000 100 000 10 00 35 00 600 000 150 000 00 60 Debt L 600 000 2 500 000 60 0 1 500 000 1 000 000 100 000 10 00 35 Ctrl

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