Naveed SAOG is considering two plans to buy a new machine for OMR 200000. Plan A involves issuance of 50000 shares of common stock at the current market price of OMR 3 per share and 10000 shares at OMR 5 per share. Plan B involves issuance of OMR 150000, 12% bonds and OMR 50000, 24% debentures at face value. Income before interest and taxes on the new machine will be OMR 300000. Income taxes are expected to be 25%. Naveed SAOG currently has 10000 shares of common stock outstanding and Interest-bearing bonds of OMR 25000 at a rate of 9% per year. (b) Calculate basic Earnings Per Share (EPS) under the both plans and select the best cause of action from the viewpoint of existing shareholders.

Naveed SAOG is considering two plans to buy a new machine for OMR 200000. Plan A involves issuance of 50000 shares of common stock at the current market price of OMR 3 per share and 10000 shares at OMR 5 per share. Plan B involves issuance of OMR 150000, 12% bonds and OMR 50000, 24% debentures at face value. Income before interest and taxes on the new machine will be OMR 300000. Income taxes are expected to be 25%. Naveed SAOG currently has 10000 shares of common stock outstanding and Interest-bearing bonds of OMR 25000 at a rate of 9% per year. (b) Calculate basic Earnings Per Share (EPS) under the both plans and select the best cause of action from the viewpoint of existing shareholders.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 17P

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