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An all-equity firm currently has 2.5 million shares of stock outstanding and is considering borrowing $10 million at 7% and buying back two-fifths of those
- An all-equity firm currently has 2.5 million shares of stock outstanding and is considering borrowing $10 million at 7% and buying back two-fifths of those shares. Solve for the break-even EBIT assuming a tax rate of zero and then show that (a) at an EBIT above the break-even, EPS would be higher with debt than without debt; and (b) at an EBIT below the break-even, EPS would be lower with debt than without debt.
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The Handbook Of Equity Derivatives
Authors: Jack Clark Francis, William W. Toy, J. Gregg Whittaker
1st Edition
0471326038, 978-0471326038
