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The fiNancial Manager for a New Startup Company Is Faced

question 46

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?


Definitions:

Siblicide

The act of killing one's own sibling, occurring in some animal species as a competitive behavior for resources.

Adult Mortality

The rate at which adults in a population die, which can influence population dynamics and evolutionary strategies.

Egg Guarding

The behavioral practice by which one or both parents protect their eggs from predators and environmental hazards to ensure successful hatching.

Membracinae

A subfamily of insects within the Hemiptera order, known for their pronounced pronotum that often mimics plant parts.

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