DATA:

Fazio Pump Corporation - Current

Common stock outstanding (shares) 1,100,000

Debt $8,000,000
Interest rate on debt 10.0%

Fazio Pump Corporation - Expansion Project

Total cost of project $5,000,000

Amount realized from sale of common stock (per share) $ 20

Interest rate on new debt 11.0%
Dividend rate on new preferred stock 10.0%

EBIT after raising new funds $6,000,000

Tax rate 35%
a.

Additional - financing Alternatives

Common Debt Preferred

EBIT
Interest on existing debt
Interest on new debt

EBT
Taxes

EAT
Dividends on new
preferred stock

EACS

Number of common
shares outstanding

EPS
b. (1)
EBIT $ 3,000,000

Additional - financing Alternatives

Common Debt Preferred

EBIT
Interest on existing debt
Interest on new debt

EBT
Taxes

EAT
Dividends on new
preferred stock

EACS

Number of common
shares outstanding

EPS
b. (2)
EBIT $ 4,000,000

Additional - financing Alternatives

Common Debt Preferred

EBIT
Interest on existing debt
Interest on new debt

EBT
Taxes

EAT
Dividends on new
preferred stock

EACS

Number of common
shares outstanding

EPS
b. (3)
EBIT $ 8,000,000

Additional - financing Alternatives

Common Debt Preferred

EBIT
Interest on existing debt
Interest on new debt

EBT
Taxes

EAT
Dividends on new
preferred stock

EACS

Number of common
shares outstanding

EPS
c. (1)

New tax rate 46%

EBIT $6,000,000

Additional - financing Alternatives

Common Debt Preferred

EBIT
Interest on existing debt
Interest on new debt

EBT
Taxes

EAT
Dividends on new
preferred stock

EACS

Number of common
shares outstanding

EPS
c. (2)
New debt rate 8%
New preferred stock rate 7%
EBIT $6,000,000

Additional - financing Alternatives

Common Debt Preferred

EBIT
Interest on existing debt
Interest on new debt

EBT
Taxes

EAT
Dividends on new
preferred stock

EACS

Number of common
shares outstanding

EPS
c. (3)

Amount realized from common stock $ 40

EBIT $6,000,000

Additional - financing Alternatives

Common Debt Preferred

EBIT
Interest on existing debt
Interest on new debt

EBT
Taxes

EAT
Dividends on new
preferred stock

EACS

Number of common
shares outstanding

EPS