FINANCE AND [STUDENT NAME]

[COURSE NAME& NUMBER]

[INSTRUCTOR NAME]

FINANCIAL
[DATE SUBMITTED]

MANAGEMENT
(2021-2022)

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 [

Table of content:

1) Time value of money………………………………………………………………………………2

2) Capital expenditure decisions and investment criteria…………………………………………….4

3) Company valuation…………………………………………………………………………………5

4) Portfolio theory and analysis……………………………………………………………………….6

5) Capital structure - MM proposition………………………………………………………………...13

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Q1) Time value of money:
a)
Time to retirement (in years) 25
Monthly expense on trip 9000
No of withdrawal 15
Effective Annual Rate 0.14
Annual Income required 35000
Amount to be accumulate till retirement 283312.175
Monthly Savings Required £3,435.12

Time to retirement (in years) 25

Monthly exp on trip 9000
No of withdrawal 15
Effective Annual Rate 14%
Annual Income required 35000
   

Amount to be accumulate till retirement (PV(B4,B3,-B5)+B2*12)/(1+B4)

Monthly Savings Required PMT(B4,B1,-B6,0)/12

b)
calculate the future value: -  
   

2|Page
 FV (Rate, nper, pmt, pv)  
  AT 9%
Where rate = 9% and 6% £340,768.85
   
Time = 30 years  
   
Pmt = 2500 or 7500 AT 6%
   
Pv = 0 since we have annual contribution £592,936.40

In case of company retirement fund the company double the amount of what is put up by us. Hence if
we deposit 2500 the company will deposit 5000 making it a total of £7,500.

c)
Average pension payment per annum = $12,000 and expected number of years of payment = 12
Amount needed at the time of retirement of the employee = $100,606.13
Calculation using TI BA II Plus calculator:
Set END
P/Y= 1, C/Y=1
N= 12
I/Y= 6
PMT= - 12,000
FV= 0
CPT PV= 100,606.1273.
With current amount in the fund per employee at $30000.
Annual sum to be put into pension fund over 15 years= $1,233.43 as follows:
N= 15
I/Y= 6
PV= -30,000
FV= 100,606.13
CPT PMT= 1,233.434497

d)
The internal rate of return is the rate of return on an investment project over its life. It is computed by
finding the discount rate that results in a zero net present value for the project. ... If the project's
internal rate of return is greater than the cost of capital, then the project is acceptable.

e)

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When comparing projects, the IRR approach does not take project size into consideration. The amount
of capital investment required to generate the cash flows is easily compared.
It doesn't take into account the actual dollar value of similar investments. It does not make any
comparisons between the holding periods of similar investments. It fails to take into account the
elimination of negative cash flows. It does not take into account the reinvestment of positive cash
flows.

f)
The payback period is determined by multiplying the investment amount by the annual cash flow. The
payback time is used by account and fund managers to assess whether or not to proceed with an
investment. Longer payback periods are less desired, whereas shorter payback periods are more
appealing.

Q2) Capital expenditure decision and investment criteria:

a)
Raindeer Plc:
  Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Final testing cost -40000          
Equipment used -70000         70000
Cost of the
machinery -1200000         360000
WC-Inventory cost   -1368000 0 0 304000 1080000
Initial marketing
expenses -200000          
Units to be sold   35000 45000 45000 45000 35000
Per unit price   152 152 152 152 152
Total sales value   5320000 6840000 6840000 6840000 5320000
Less cost of sales            
Labour cost   3168000 3240000 3240000 3240000 2520000
Other cost   2112000 2160000 2160000 2160000 1680000
Factory space rent   50000 50000 50000 50000 50000
Heating, lighting
and power   30000 30000 30000 30000 30000
Fixed
manufacturing costs   150000 150000 150000 150000 150000
Depreciation
expense   300000 225000 168750 126263 94922

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 Net income before
Tax   -490000 985000 1041250 1083737 795078
Less Tax(30%)   147000 -295500 -312375 -325121 -238523
Net income (loss)   -343000 689500 728875 758615.9 556554.6
Add depreciation   300000 225000 168750 126263 94922
Cash Flow -1510000 -1411000 914500 897625 1188879 2161477
Required rate of
return(14%) 1 0.877193 0.769468 0.674972 0.59208 0.519369
Present value of
cash flow -1510000 -1237719 703678.1 605871.3 703911.7 1122603
             
NPV 388345.0274          
IRR 18.74%          
Payback period 3.93          
Discounted
payback period 4.65 years          

b)
Cost of product has not been taken into account as it is sunck cost. If it is taken for decision making
the result can be different.
NPV is sensitive to the variable costs of the products and if the fixed costs decrease our NPV will
increase and project will be more feasible.

c)
If you're using cash flow data that are adjusted for inflation each period, you'll need to multiply the
discount rate by the overall inflation rate. If the discount rate is 14% and inflation is 4%, the NPV
must be calculated as (1+0.14) x (1+0.04) = 1.1856. Thus, the required rate of return to be used would
be 18.56%.

Q3 Company valuation:
1)
EPS = Earnings/ Total shares outstanding 80/200
  0.4
EPS  
Using the dividend growth model  
Price of share 0.30/(30%-5%)
  1.2
   
Total number of shares outstanding = 200 million  
per share price 1.2
Value of firm 240 million

2)
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 when required rate of return 15%  
Price of share 0.30/(15%-5%)
  3
when required rate of return 25%  
Price of share 0.30/(25%-5%)
  1.5

3)
P/E ratio MPS/EPS
   
P/E ratio 1.20/0.40
  3 times

4)
The Price Earnings (P/E) ratio is the most common valuation metric employed by investors among
them. The P/E ratio is calculated by dividing the stock market price by the earnings per share of the
firm (EPS). A PE ratio of 10 is calculated by dividing the share price of Rs 200 by the EPS of Rs 20.

5)

12/1.06+12/1.06^2+12/1.06^3+12/1.06^4+112/1.0
Value of the bond 6^5
The value of the bond 125.2741827

Q4) Portfolio theory and analysis:

FTSE 888
ALL 4IMPRIN HOLDING AGGREK ANGLO
  Name SHARE T GROUP S O AMERICAN
-
1 30/01/2009 0.05901 -0.12667 -0.10579 -0.12282 -0.18111
-
2 27/02/2009 0.07175 -0.16031 0.20845 -0.08504 -0.20932
3 31/03/2009 0.02820 0.03182 -0.04429 0.37456 0.18482
4 30/04/2009 0.09520 0.26872 -0.04390 0.17538 0.25126
5 29/05/2009 0.03662 0.01910 0.06122 0.01298 0.19744
-
6 30/06/2009 0.03576 -0.24361 -0.00481 -0.11442 -0.00760
7 31/07/2009 0.08351 -0.05405 -0.20531 0.05495 0.09441
8 31/08/2009 0.07104 -0.02381 0.03951 0.21389 0.04715
9 30/09/2009 0.04528 0.07317 0.07485 0.05724 -0.01385
-
10 30/10/2009 0.01905 0.34091 0.02938 0.08262 0.11139
11 30/11/2009 0.02470 -0.16949 0.10994 -0.03092 0.17517
12 31/12/2009 0.04243 0.02041 0.05714 0.26272 0.04149
13 29/01/2010 - 0.00800 -0.01532 -0.02742 -0.14349

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 0.03633
14 26/02/2010 0.02868 0.15873 -0.07411 0.07795 0.02929
15 31/03/2010 0.06336 0.07534 -0.01976 0.22257 0.20251
-
16 30/04/2010 0.01610 0.41401 -0.21371 0.02684 -0.02383
-
17 31/05/2010 0.06642 -0.04955 -0.31731 0.03269 -0.05151
-
18 30/06/2010 0.04852 -0.04028 -0.33333 0.11946 -0.11669
19 30/07/2010 0.06758 0.02469 0.36620 0.08268 0.07403
-
20 31/08/2010 0.00686 0.01205 -0.23711 -0.07376 -0.07308
21 30/09/2010 0.06336 0.01190 0.17568 0.10641 0.07927
22 29/10/2010 0.02391 0.20941 0.05172 0.00319 0.15146
-
23 30/11/2010 0.02539 -0.03113 -0.07650 -0.06984 -0.03009
24 31/12/2010 0.07032 0.08434 0.29586 0.01161 0.18259
-
25 31/01/2011 0.00607 -0.04444 -0.14612 -0.03172 -0.08185
26 28/02/2011 0.02047 0.00194 -0.10160 0.00836 0.08849
-
27 31/03/2011 0.01251 -0.02321 0.02976 0.08916 -0.03795
28 29/04/2011 0.02846 0.02970 -0.12139 0.13388 -0.02697
-
29 31/05/2011 0.01076 0.04423 -0.09211 0.04477 -0.02900
-
30 30/06/2011 0.00780 -0.01105 0.00000 0.03321 0.01898
-
31 29/07/2011 0.02283 0.02421 0.02174 -0.00186 -0.06073
-
32 31/08/2011 0.07452 -0.16364 -0.13475 0.00311 -0.11466
-
33 30/09/2011 0.05218 -0.07609 0.03279 -0.15987 -0.13184
34 31/10/2011 0.07779 0.20000 0.04762 0.05095 0.02894
-
35 30/11/2011 0.00875 -0.10196 0.03030 0.10398 0.05516
36 30/12/2011 0.00777 0.01092 0.26471 0.06720 -0.01694
37 31/01/2012 0.02625 0.12311 0.22093 0.03867 0.10298
38 29/02/2012 0.03785 -0.08462 0.07143 0.05633 0.00972
-
39 30/03/2012 0.01351 0.24370 0.12889 0.01672 -0.11795
-
40 30/04/2012 0.00603 -0.07095 0.30315 0.00044 0.01326
-
41 31/05/2012 0.07290 0.00000 -0.16616 -0.02354 -0.16765
42 29/06/2012 0.04494 0.05273 -0.07971 -0.05733 0.05961
43 31/07/2012 0.01239 -0.07599 0.25591 -0.01448 -0.09026
44 31/08/2012 0.01550 0.13458 0.05956 0.15573 -0.07895
45 28/09/2012 0.00882 0.07002 0.08876 -0.01991 0.03829
46 31/10/2012 0.00852 0.07507 0.13859 -0.07047 0.04733
47 30/11/2012 0.01352 -0.02329 0.06444 0.03814 -0.08960

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 48 31/12/2012 0.00917 0.04106 0.06951 -0.22043 0.09322
49 31/01/2013 0.06270 0.01972 -0.03983 -0.08219 -0.00396
50 28/02/2013 0.01886 0.01519 0.33406 0.06199 0.01882
51 29/03/2013 0.00933 0.23810 0.09984 0.05071 -0.11967
52 30/04/2013 0.00282 0.10989 0.01190 0.00000 -0.07506
53 31/05/2013 0.02467 0.00000 -0.08588 0.00280 -0.02460
-
54 28/06/2013 0.05300 0.00000 -0.05019 -0.08114 -0.17065
55 31/07/2013 0.06695 0.09109 0.15786 0.08404 0.11216
-
56 30/08/2013 0.02835 -0.01996 -0.15916 -0.08596 0.05007
57 30/09/2013 0.00980 0.01574 0.15866 -0.01413 0.02672
58 31/10/2013 0.04108 0.14403 -0.04444 0.00374 -0.02174
-
59 29/11/2013 0.01028 -0.01355 0.04965 -0.00310 -0.09158
60 31/12/2013 0.01724 0.07997 0.03293 0.06479 -0.02150
-
61 31/01/2014 0.03134 0.08227 -0.17159 -0.09538 0.08788
62 28/02/2014 0.04866 -0.03386 0.09307 0.00906 0.06616
-
63 31/03/2014 0.03029 -0.02003 -0.03521 -0.03782 -0.00294
64 30/04/2014 0.01807 -0.01533 -0.02721 0.05063 0.03636
65 30/05/2014 0.00972 0.00741 -0.14325 0.05143 -0.07870
-
66 30/06/2014 0.01500 -0.04930 -0.04857 -0.01020 -0.01887
-
67 31/07/2014 0.00405 0.09907 -0.00837 0.04242 0.11818
68 29/08/2014 0.01504 0.05634 0.07173 -0.01047 -0.04315
-
69 30/09/2014 0.02902 -0.01067 0.02362 -0.09048 -0.09542
-
70 31/10/2014 0.00862 0.06098 -0.01538 -0.01680 -0.04877
71 28/11/2014 0.02565 0.05303 0.05273 0.00723 0.00380
-
72 31/12/2014 0.01686 -0.02895 0.02783 -0.01892 -0.09156
73 30/01/2015 0.02521 0.09441 0.01986 0.03324 -0.07289
74 27/02/2015 0.03381 0.05448 0.13805 0.09910 0.08715
-
75 31/03/2015 0.02155 0.10872 -0.05443 -0.10597 -0.16364
76 30/04/2015 0.02633 0.06019 0.05428 0.08120 0.09190
77 29/05/2015 0.00986 0.00092 0.02652 -0.02604 -0.07149
-
78 30/06/2015 0.05966 -0.01921 -0.07295 -0.10510 -0.10478
79 31/07/2015 0.02302 0.14179 0.11475 -0.16609 -0.11682
-
80 31/08/2015 0.05972 -0.10049 -0.04265 -0.11083 -0.08654
-
81 30/09/2015 0.02875 0.12625 0.01536 -0.10872 -0.25655
82 30/10/2015 0.04457 0.04435 -0.02269 -0.03733 -0.00781
83 30/11/2015 0.00216 -0.02394 -0.00155 0.09776 -0.25238

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 -
84 31/12/2015 0.01371 0.00475 0.13178 -0.09055 -0.26722
-
85 29/01/2016 0.03146 -0.07087 -0.04110 -0.06674 -0.07347
86 29/02/2016 0.00298 -0.01864 0.01429 0.03693 0.73094
87 31/03/2016 0.01475 0.08895 0.19577 0.21764 0.14961
88 29/04/2016 0.00781 0.04441 0.01767 0.00929 0.38272
89 31/05/2016 0.00236 0.03569 0.07755 0.03404 -0.21391
90 30/06/2016 0.02498 -0.04692 -0.12030 0.13701 0.21130
91 29/07/2016 0.03936 0.09615 0.10012 0.00626 0.14252
92 31/08/2016 0.01187 0.12281 -0.03219 -0.20762 -0.06105
93 30/09/2016 0.01573 0.09500 0.01606 -0.06428 0.24083
94 31/10/2016 0.00341 -0.05879 -0.01806 -0.15941 0.16887
-
95 30/11/2016 0.02010 0.00182 -0.03793 0.01996 0.04775
96 30/12/2016 0.04897 0.07446 0.03704 0.12294 -0.02110
-
97 31/01/2017 0.00386 -0.06028 0.03687 0.09695 0.17069
98 28/02/2017 0.02466 -0.01079 0.03111 0.04667 -0.06443
99 31/03/2017 0.00925 0.08242 0.15086 -0.16176 -0.04014
-
100 28/04/2017 0.00689 -0.00280 0.04682 0.00453 -0.09266
101 31/05/2017 0.03876 -0.03650 0.04025 -0.02592 -0.06778
-
102 30/06/2017 0.02767 -0.01923 -0.12210 0.06478 -0.00727
103 31/07/2017 0.01100 -0.05764 0.00881 -0.07822 0.22314
104 31/08/2017 0.00662 0.27049 0.02136 0.06187 0.11976
-
105 29/09/2017 0.00567 -0.09132 -0.02357 0.04218 -0.04492
106 31/10/2017 0.01674 0.05025 -0.02375 -0.00213 0.06010
-
107 30/11/2017 0.02036 -0.05096 0.03510 -0.09338 -0.04296
108 29/12/2017 0.04660 0.04110 0.08555 -0.05945 0.14018
-
109 31/01/2018 0.01993 0.05263 0.00035 0.00951 0.10268
-
110 28/02/2018 0.03771 -0.05500 0.01348 -0.07339 0.04214
-
111 30/03/2018 0.02196 -0.16667 -0.05532 -0.01766 -0.06717
112 30/04/2018 0.05996 0.09206 0.01483 -0.00245 0.02914
113 31/05/2018 0.02290 0.01744 0.09423 -0.04069 0.05136
-
114 29/06/2018 0.00473 -0.01714 -0.10013 -0.03786 -0.05698
115 31/07/2018 0.01215 0.17442 -0.07567 0.09941 0.02242
-
116 31/08/2018 0.03460 0.06436 -0.06501 0.12836 -0.11034
117 28/09/2018 0.00530 -0.07442 -0.14464 0.04007 0.11767
-
118 31/10/2018 0.05419 -0.09045 -0.07025 -0.01582 -0.02774
119 30/11/2018 - 0.12707 -0.11333 -0.13117 -0.06507

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 0.02072
-
120 31/12/2018 0.03878 -0.09559 0.06512 -0.01770 0.11595
             
Average
  return 0.005 0.026 0.012 0.008 0.009
Standard
  deviation 0.036 0.101 0.119 0.094 0.132
  Variance 0.189 0.317 0.345 0.306 0.364

Covariance
FTSE 4IMPRIN 888 ANGLO
ALL T HOLDIN AGGREK AMERICA
  SHARE GROUP GS O N
FTSE ALL 0.0012629
SHARE 4
4IMPRINT 0.0012305 0.0101463
GROUP 78 8
0.0014715 0.0007557
888 HOLDINGS 93 1 0.01415078
0.0013374 0.0017280 0.0087474
AGGREKO 02 8 0.0005518 98
ANGLO 0.0020174 0.0014297 0.0033833 0.01748085
AMERICAN 33 9 0.00179039 33 2

Q4A)
FTSE ALL SHARE Name
-0.05901 30/01/2009
-0.07175 27/02/2009
0.02820 31/03/2009
0.09520 30/04/2009
0.03662 29/05/2009
-0.03576 30/06/2009
0.08351 31/07/2009
0.07104 31/08/2009
0.04528 30/09/2009
-0.01905 30/10/2009
0.02470 30/11/2009
0.04243 31/12/2009
-0.03633 29/01/2010
0.02868 26/02/2010
0.06336 31/03/2010
-0.01610 30/04/2010

10 | P a g e
 -0.06642 31/05/2010
-0.04852 30/06/2010
0.06758 30/07/2010
-0.00686 31/08/2010
0.06336 30/09/2010
0.02391 29/10/2010
-0.02539 30/11/2010
0.07032 31/12/2010
-0.00607 31/01/2011
0.02047 28/02/2011
-0.01251 31/03/2011
0.02846 29/04/2011
-0.01076 31/05/2011
-0.00780 30/06/2011
-0.02283 29/07/2011
-0.07452 31/08/2011
-0.05218 30/09/2011
0.07779 31/10/2011
-0.00875 30/11/2011
0.00777 30/12/2011
0.02625 31/01/2012
0.03785 29/02/2012
-0.01351 30/03/2012
-0.00603 30/04/2012
-0.07290 31/05/2012
0.04494 29/06/2012
0.01239 31/07/2012
0.01550 31/08/2012
0.00882 28/09/2012
0.00852 31/10/2012
0.01352 30/11/2012
0.00917 31/12/2012
0.06270 31/01/2013
0.01886 28/02/2013
0.00933 29/03/2013
0.00282 30/04/2013
0.02467 31/05/2013
-0.05300 28/06/2013
0.06695 31/07/2013
-0.02835 30/08/2013
0.00980 30/09/2013
0.04108 31/10/2013
-0.01028 29/11/2013
0.01724 31/12/2013
-0.03134 31/01/2014
0.04866 28/02/2014
-0.03029 31/03/2014

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 0.01807 30/04/2014
0.00972 30/05/2014
-0.01500 30/06/2014
-0.00405 31/07/2014
0.01504 29/08/2014
-0.02902 30/09/2014
-0.00862 31/10/2014
0.02565 28/11/2014
-0.01686 31/12/2014
0.02521 30/01/2015
0.03381 27/02/2015
-0.02155 31/03/2015
0.02633 30/04/2015
0.00986 29/05/2015
-0.05966 30/06/2015
0.02302 31/07/2015
-0.05972 31/08/2015
-0.02875 30/09/2015
0.04457 30/10/2015
0.00216 30/11/2015
-0.01371 31/12/2015
-0.03146 29/01/2016
0.00298 29/02/2016
0.01475 31/03/2016
0.00781 29/04/2016
0.00236 31/05/2016
0.02498 30/06/2016
0.03936 29/07/2016
0.01187 31/08/2016
0.01573 30/09/2016
0.00341 31/10/2016
-0.02010 30/11/2016
0.04897 30/12/2016
-0.00386 31/01/2017
0.02466 28/02/2017
0.00925 31/03/2017
-0.00689 28/04/2017
0.03876 31/05/2017
-0.02767 30/06/2017
0.01100 31/07/2017
0.00662 31/08/2017
-0.00567 29/09/2017
0.01674 31/10/2017
-0.02036 30/11/2017
0.04660 29/12/2017
-0.01993 31/01/2018
-0.03771 28/02/2018

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 -0.02196 30/03/2018
0.05996 30/04/2018
0.02290 31/05/2018
-0.00473 29/06/2018
0.01215 31/07/2018
-0.03460 31/08/2018
0.00530 28/09/2018
-0.05419 31/10/2018
-0.02072 30/11/2018
-0.03878 31/12/2018

SUMMARY
OUTPUT

Regression Statistics
0.1225219
Multiple R 19
0.0150116
R Square 21
Adjusted 0.0066642
R Square 61
Standard 1055.2857
Error 76
Observatio
ns 120

ANOVA
Significa
  df SS MS F nce F
200271 200271 1.7983
Regression 1 3 3 68 0.182486
1.31E+ 111362
Residual 118 08 8
1.33E+
Total 119 08      

Standa
Coefficie rd P- Lower Upper Lower Upper
  nts Error t Stat value 95% 95% 95.0% 95.0%
41670.710 97.2375 428.54 3.3E- 41863. 41478. 41863.
Intercept 78 8 53 190 41478.15 27 15 27
- -
X Variable 3635.1919 2710.74 1.3410 0.1824 1732.8 - 1732.8
1 32 2 3 86 -9003.2 14 9003.2 14

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 FTSE
6/18/2020

9/22/2017

12/27/2014
f(x) = − 3635.19193193709 x + 41670.7107819537
4/1/2012

7/6/2009

10/10/2006

1/14/2004
-0.10000 -0.05000 0.00000 0.05000 0.10000 0.15000

Q7) Capital structure - MM proposition:

i)
Option1 (Issue of bond) Option2 (issue
of shares)

EBIT 900000 900000

Less Interest on bonds paid -100000 0
(1,000,000*10%)    
EBT 800000 900000
Less Tax payable(35%) -280000 -315000
Earning after Tax 520000 585000
No of shares outstanding 500,000 750,000

EPS = Net Income/ No of shares outstanding  

520,000/500,000 585000/750000
1.04 0.78

ii)

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 No of shares outstanding before the change of capital structure 500,000
Tax rate 35%
Let suppose X is earning at which EPS is equal in both the financing option

EPS when the share capital issued for new funds X*.65/750,000
EPS when the bonds issued for new funds (X-100,000) *.65/500,000

The Condition where EPS in both the financing options are equal
(X-100,000) *.65/500,000 = X*.65/750,000  
0.65X-65000=X*.65/750,000*500,000  
0.65X-65000=0.43X  
0.21666667X=65000  
X=300,000  
   
EBIT = 300,000  
Net income= 300000-300000*.35%=195000  
EPS on both cases 195000/750000
  0.26
   
EPS in case of bond issue  
EBIT 300,000
Less interest paid 100000
EBT 200,000
Less Income Tax 70000
Net Income 130,000
No of shares outstanding  
  500000
EPS 130000/500000
  0.26

Calculation:
EBIT 325,000 325,000
Less interest paid 100000  
EBT 225,000 325,000
Less Income Tax 78750 113750
Net Income 146,250 211,250
No of shares outstanding 500000 750000
  0.2925 0.281666667

iii)
Bonds issue case Share issue case
EBIT EPS EPS
275000 0.23 0.24
300000 0.26 0.26

15 | P a g e
 325000 0.30 0.28

16 | P a g e