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Quick Inc has 300 000 outstanding Common Shares and 200 000 preferred stock whose preferred dividend is 1.5$ per share.
Quick Inc has 300 000 outstanding Common Shares and 200 000 preferred stock whose preferred dividend is 1.5$ per share. The managers of of Quick Inc are considering a new project that required 12 000 000$ initial investment they think that this project will increase EBIT a lot. The analysts propose two financing options:
1) Financing 50% kf the amount with long term bond offering 8% coupons and 50% with other long term bonds offering 8.5%
2) financing 1/3 of the amount with long term bonds offering 8% coupons, 1/3 with preferred stock at 10% dividend, and 1/3 with common shares that will be sold at 50$
Tax rate is 40%
a) Using these numbers, write the equation of EPS as a function of EBIT for each option
b) for both options, calculate the level of EBIT that results in zero EPS
c) Calculate the level of EBIT that results in the same EPS with both options
