For the year ended 2020, Frilo Company has $1,250,000 of debt with an annual interest rate of 8.8%, $2,000,000 of preferred stock with an annual preferred dividend rate of 10.5%, $3,500,000 of common stock (total book value), and 250,000 common shares outstanding. In 2021, the company plans to raise $500,000 external capital to fund a new project through a term loan with an interest rate of 9.3%. The new loan's sinking fund provision requires the loan to be fully amortized over the next 5 years, commencing in 2022. The company expects that the existing debt and preferred stock will not be retired until the year 2026; hence, they will remain in the same amount in 2021. If the project goes as planned, the company expects $1,200,000 of EBIT in 2021. The company's tax rate is 40%. What will the expected earnings per share under the new debt alternative be? (Hint: Perform EBIT-EPS Analysis in the long-term financing decisions.) Group of answer choices $1.58 $1.66 $1.55 $1.51 $1.62
For the year ended 2020, Frilo Company has $1,250,000 of debt with an annual interest rate of 8.8%, $2,000,000 of
In 2021, the company plans to raise $500,000 external capital to fund a new project through a term loan with an interest rate of 9.3%. The new loan's sinking fund provision requires the loan to be fully amortized over the next 5 years, commencing in 2022. The company expects that the existing debt and preferred stock will not be retired until the year 2026; hence, they will remain in the same amount in 2021. If the project goes as planned, the company expects $1,200,000 of EBIT in 2021. The company's tax rate is 40%.
What will the expected earnings per share under the new debt alternative be? (Hint: Perform EBIT-EPS Analysis in the long-term financing decisions.)
Group of answer choices
$1.58
$1.66
$1.55
$1.51
$1.62
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