The Lopez-Portillo Company has $10.1 million in assets, 90 percent financed by debt and 10 percent financed by common stock.
The interest rate on the debt is 14 percent and the par value of the stock is $10 per share. President Lopez-Portillo is considering two financing plans for an expansion to S15.5 million in assets.
Under the debt-to-total-assets ratio will be maintained, but new debt cost a whopping 16 percent! Under Plan B, only new common stock at $10 per share will be issued. The tax rate is 30 percent.
a. If EBIT is 16 percent on total assets, compute earnings per share (EPS) before the expansion and under the two alternatives.
(Round your answers to 2 decimal places.) Earnings per Share Curren Plan A Plan B