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Unformatted text preview: Debt 7,020,000/800,000=8.78 Equity 7,920,000/1,000,000=7.92 B. Discuss the factors the board should consider in making a decision. This question seems kind of tricky because one option is better in some ways and in other cases it’s not so great. For example, if the board were to take the loan option or “debt option” as I refer it to be then the company will look at having a 50% debt expectancy where as with the equity option would only give them a 40% debt expectancy. Then if you look at the times interest earned it is slightly less than it would be with the equity option. However if they chose this option their earnings per share would be almost a dollar higher in value than the other option. So like I said this is a tricky question, the board really needs to look into all three of these sections, and maybe look at the last couple years finance information and try to predict what would be the best option for their future. This is a tough choice....
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This note was uploaded on 06/13/2011 for the course ACC 320 taught by Professor Tittle during the Spring '10 term at Temple.
- Spring '10
- Earnings Per Share