1. Stinson Corporation is planning an equity issue to finance a new product. Stinson plans to issue 100,000 shares of stock. Projected EPS after completion of the project is $9 and the total shares outstanding will be 200,000. What are the projected after-tax earnings after completion of the project?
a. $1.4 mil b. $1.6 mil c. $1.8 mil d. none
2. Jensen Corporation is planning a bond issue to finance a new product. Jensen plans to issue 2000 bonds with a face value of $1000 each and a coupon rate of 12%. The tax rate is 40%. Projected earnings after completion of the project are $2 million and shares outstanding will be 200,000. What is the projected EPS after completion of the project?
a. $5.18 b. $5.28 c. $5.38 d. none
3. Breakeven EBIT balances the interest cost of debt with
a. The dilution from issuing additional shares b. The tax advantage of debt c. neither