Babes Corp. Projects operating income of P4.0 million next year. The firm income tax rate is 30%. Babes presently has 750,000 shares of common stock which have a market value of P10 per share, no preferred stock and no debt. The firm is considering two alternatives to finance a new product: a) the issuance of P6.0 million of 10% bonds, or b) the issuance of 60,000 additional new shares of common stock. What will be the projected EPS next year if new common shares will be issued. What will be the projected EPS next year if 10% bonds will be issued.  What will be the firm’s ROE next year if the firm issues new common stock.

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