Problem:
Zybeck Corp. projects operating income of $4 million next year. The firm%u2019s income tax rate is 40%. Zybeck presently has 750,000 shares of common stock which have a market value of $10 per share, no preferred stock, and no debt. The firm is considering two alternatives to finance a new product: (a) the issuance of $6 million of 10% bonds, or (b) the issuance of 60,000 new shares of common stock.
Required:
Question: If Zybeck issues common stock this year, what will be the projected EPS next year?
Note: Please show how you came up with the solution.