Question
An all-equity firm has an operating income of $1.5 million and EPS of $2. If the tax rate is 35%, and if $1 million of
An all-equity firm has an operating income of $1.5 million and EPS of $2. If the tax rate is 35%, and if $1 million of 10% debt were issued with the proceeds used to repurchase one-thirds of the outstanding shares of stock, then the firm's EPS would:
A. Increase to 5.20
B. Decrease to 2.60
C. Increase to $2.80
D. Increase to $3.00
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Analysis For Financial Management
Authors: Robert C. Higgins
10th International Edition
007108648X, 9780071086486
