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Assume perfect capital markets. Redwood Co. is currently an all equity financed firm. It expects to generate EBIT of $20 million over the next year
Assume perfect capital markets. Redwood Co. is currently an all equity financed firm. It expects to generate EBIT of $20 million over the next year (year 1 ). Currently Redwood has 8 million shares outstanding and its stock is trading at $20.00 per share. Redwood is considering changing its capital structure by borrowing $50 million at an interest rate of 8% and using the proceeds to repurchase shares. Required: In perfect capital markets, the cost of equity capital a firm's leverage ratio. After changing its capital structure, Redwood's EPS will be $ (Provide an answer with two decimal places. For example, 1.23.) After changing its capital structure, Redwood's PE ratio will Does this change in PE ratio suggest that Redwood becomes a more attractive investment opportunity
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