Please answer Problem 10-12 parts a (1-2) and b. 600CHECK(a) 1. $6.54Financial Statement AnalysisRequired:a. Assuming TOPP maintains its current income level and achieves the expected income from expansion, what willbe TOPP's earnings per share:(1) If expansion is financed by debt?(2) If expansion is financed by equity?b. At what level of income before interest and taxes will earnings per share be equal under both alternatives? TOPP Company is planning to invest $20,000,000 in an expansion program expected to increaseincome before interest and taxes by $4,000,000. TOPP currently is earning $5 per share on2,000,000 shares of common stock outstanding. TOPP's capital structure prior to the invest-ment is as follows:Total debt.....Shareholders' equity....Total capitalization....00028rExpansion can be financed by the sale of 400,000 shares at $50 each or by issuing long-term debtat 6%. TOPP's most recent income statement follows:Sales ....$100,000,000Variable costs....Fixed costs...Total costs.$20,000,00050,000,000$70,000,000Income before interest and taxes...Interest expense (6% rate). . . . .Income before taxesIncome taxes (40% rate).Net income....... $60,000,00020,000,000ani(80,000,000)20,000,000(1,000,000)19,000,000(7,600,000)$ 11,400,000PROBLEM 10-12Analyzing AlternativeFinancing Strategies

Lets understand the basics. When expansion is made then it can be done either using equity or debt.…

Answered: Required: a. Assuming TOPP maintains…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

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Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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