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Consider the following information regarding Pink Tartan Inc. Number of units produced             1,000,000 Total fixed cost           &nb

  1. Consider the following information regarding Pink Tartan Inc.

Number of units produced             1,000,000

Total fixed cost                                $250,000

Per unit variable cost                                  $0.32

Interest on outstanding debt                    $400,000

Per unit selling price                                  $3.80

Tax rate = 46%

  1. Pink Tartan Inc. has 1,000,000 shares outstanding currently selling in the market for $10. The firm is evaluating a new project that would require an initial investment of $2,400,000.

To raise the additional $2,400,000, the firm is considering two alternatives: (6)

  1. Debt: sell $2,400,000 worth of bonds that would carry a 14% coupon rate.
  2. Equity: sell $2,400,000 worth of new shares that would net the firm $16 per share.

What level of EBIT would yield the same EPS for the above alternatives? What EPS corresponds to this level of EBIT?

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jeff jeffy answered 1 year ago
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