Options to financing a business expansion.

A Corporation is planning to expand the business and needs

$30,000,000. The company believes that a 12-year term loan can be

negotiated with a bank at an annual rate of 10%. Alternatively, an

investment banking firm has indicated that it is willing to

underwrite a common stock issue for a spread of 5%. The corporation

currently has 2,000,000 common shares outstanding.

(a) If new shares of the corporation’s stock can be sold for $30

per share, how many shares of stock must be sold to net the

$30,000,000 that Wheeler needs, assuming out-of-pocket expenses of

$600,000?

(b) If the corporation’s earnings before interest and taxes

increase to $10,000,000 and the applicable tax rate is 34%, what

would the earnings per share be under each financing alternative?

(Assume annual interest before financing of $1,000,000)

(c) Compute the approximate market price of the common stock if the

P/E ratio remains at 10 if new stock is issued but falls to 9.5 if

the money is borrowed.

Need the step by step walk through in order to understand the

process taken to solve the variables. Not the solutions,

I would like to do the solutions myself, but I am inthe dark as to

where to start.

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Compute the approximate market price of the common stock if the P/E ratio remains at 10 if new stock is issued but falls to 9.5 if the money is borrowed. was first posted on July 30, 2019 at 10:01 pm.

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