If raised in the form of bonds, the bonds would carry a 6.5% coupon rate. New common stock could be sold for $250.00 per share. Find the EBIT/EPS indifference point. What is the probability that EBIT will be greater than the indifference point? Which method of financing is most likely to maximize earnings per share? What method of financing do you recommend? Why? Discuss the limitations of indifference analysis...
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Prepare a properly labeled diagram of the EBIT/EPS analysis. *********************************************** SOLUTION Thunder Bay Industries Indifference Analysis You can first determine the expected EBIT for next year and using that, determine the standard deviation of that EBIT. These calculations will be useful later when we try to determine the probability that EBIT will be less than, or greater than the indifference point...
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