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# Method of financing to maximize EPS, stock issue or debt

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1. Spain Inn has a total value of \$21 million. Its stock sells at \$32 a share. At present, it has a loan of \$5 million at 8% interest. It needs \$3 million to renovate the building. It can get the financing by selling 100,000 shares of stock at \$30 (net) per share, or by borrowing the money at 9% interest. The expected EBIT after the new financing is \$3 million, with a standard deviation of \$2 million.

Which method of financing will maximize its EPS? What is the probability that you have made the right choice

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1. Spain Inn has a total value of \$21 million. Its stock sells at \$32 a share. At present, it has a loan of \$5 million at 8% interest. It needs \$3 million to renovate the building. It can get the financing by selling 100,000 shares of stock at \$30 (net) per share, or by borrowing the money at 9% interest. The expected EBIT after the new financing is \$3 million, with a standard deviation of \$2 million. Which method of financing will maximize its EPS? What is the probability that you ...

#### Solution Summary

Methods of financing to maximize EPS and stock issue or debt is determined.

\$2.19