The Financial Manager for a New Startup Company Is Faced

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?