Essay
The financial manager for a new startup company is faced with a problem of how to finance this new firm.She has estimated EBIT of €200,000; €500,000; €900,000; and €1,500,000 for each of the four equally likely states of the economy.The firm needs €5,000,000 in funds to become operational.The question is whether €5,000,000 of new equity at €20 a share should be sold or a 50/50 debt/equity capital structure with 10% coupon rate debt is better. Calculate the EPS for each plan and economic state.What is the expected EPS for each plan? What should the firm do?
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