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Bookers Bakery Limited is taking their company public

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Bookers Bakery Limited is taking their company public. Under this firm commitment offering, Bookers Bakery will receive $16.67 from the Underwriter (DFG Capital Markets) for each of the 1,500,000 shares that will be issued. You purchased 1,000 shares at the initial offering price of $19.00 per share from your friend who is a broker at DFG. Additional legal fees of $500,000 and indirect osts of $125,000 have been incurred. What are the flotation costs as a percentage of the total funds raised? Problem #5 (19 marks) Rene's Renovations Inc. is planning a major expansion program requiring $5,000,000 in financing. Option #1: Rene's may sell bonds with an 8% coupon rate, or Option #2: Rene's may sell 200,000 shares of common stock to get the needed funds. « After the expansion there is a 30% probability of EBIT (Earnings Before Interest and Taxes) being $2 million, a 50% probability of EBIT being $3 million and a 20% probability of EBIT being $4 million. The following data was taken from the firm's pre-expansion income statement: Interest expense $100,000 Tax Rate 40% Common shares outstanding 300,000 a) Calculate the EPS based on the expected EBIT under each alternative. (5 marks) b) Which plan would you chose at this level of EBIT? (1 mark) c) Which option will have the higher DFL (Degree of Financial Leverage - no calculation required)? (1 mark) d) What level of EBIT would yield the same EPS for the stock and debt alternatives? (5 marks) e) What EPS corresponds to this level of EBIT? (2 marks) f) Instead of Option #2 (issuing 200,000 common shares), if the company decided they should issue only 100,000 common shares at $25 each and finance the remainder of the project with 3% preferred shares, what would the indifference point be? (5 marks)