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Unformatted text preview: stock, the EPS of the company will drop to $1.70. If you were to issue debenture bonds, not only would EPS be higher ($1.87), but you would still clearly be the majority holders of the company. Selling a 10% bond would also be safe, as it is the asking price on the market. In order to obtain $500,000 from selling bonds, the formula would look like this: i = 5% n = 40 p = 0.142 500,000 x 0.142 = $71,000 Therefore, in order to raise the $500,000 via bonds, you would only have to issue $71,000 worth of bonds. After 20 years of semi-annual compounding at 10%, you would have earned $500,000 in order to upgrade the company....
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- Fall '07