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Charlatan Corp. currently has no debt outstanding and a total market value of $200,000. The company is considering a $100,000 debt issue, which it will
Charlatan Corp. currently has no debt outstanding and a total market value of $200,000. The company is considering a $100,000 debt issue, which it will use to repurchase shares of stock. The companys tax rate is 35 percent, and the interest rate on the debt would be 8 percent. There are currently 20,000 shares outstanding. The company would like to determine the potential impact of this capital restructuring on shareholders. The firms Finance department has projected next years EBIT under best, likely, and worst case scenarios as $30,000, $20,000, and $10,000, respectively. " a) Calculate the EPS under all three scenarios, before any debt is issued. "b)
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