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Assume a levered firm has total assets of $8,000, earnings before interest and taxes of $600, 400 shares of stock outstanding, a debt-equity ratio of
Assume a levered firm has total assets of $8,000, earnings before interest and taxes of $600, 400 shares of stock outstanding, a debt-equity ratio of 0.25, and the interest rate of debt is 7 percent. Assume the firm decides to change the capital structure and become an all-equity firm by issuing new shares to pay off all debt. Ignore taxes. What will be the amount of the change in the earnings per share as a result of this change in the capital structure?
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