6. As CFO of the Dowgie Builders Limited (DB), you are considering issuing debt to move DB from an all-equity financed firm to including long-term debt. DBs shares are currently sold for $60 per share. There are 250,000 ordinary shares outstanding.

You are considering issuing $7,500,000 bonds at 6.0% and using these funds to repurchase shares.

You are not certain of earnings next year, but expect EBIT to be either $1,000,000 or $3,000,000. Each outcome is equally likely.

Dowgie Builders has a tax rate of 30%.

1. Calculate the number of shares outstanding, the per-share price and the debt-equity ratio for Dowgie Builders if the proposed restructuring is done.
2. Calculate the expected EPS (Earnings per share) and ROE (return on equity) for DB shareholders if they use all equity financing and if they use the proposed debt financing.