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You work for the CEO of a new company that plans to manufacture and sell...

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Finance

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You work for the CEO of a new company that plans to manufacture and sell a new type of laptop computer. The issue now is how to finance the company, with only equity or with a mix of debt and equity. Expected operating income is $790,000. Other data for the firm are shown below. How much higher or lower will the firm's expected EPS be if it uses some debt rather than only equity, i.e., what is EPSL - EPSU? 0% Debt, u $790,000 $2,500,000 0.096 Oper. income (EBIT) Required investment 96 Debt $ of Debt $ of Common equity Shares issued, $10/share Interest rate 60% Debt, $790,000 $2,500,000 60.096 $1,500,000 $1,000,000 100,000 10.00% $0.00 $2,500,000 250,000 NA 2596 Tax rate 2596 a. $2.21 b. $2.11 O c. $2.43 d. $1.79 e. $2.32

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