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Consider a firm with an EBIT of $561,000. The firm finances its assets with $1,110,000 debt (costing 5.5 percent) and 211,000 shares of stock selling
Consider a firm with an EBIT of $561,000. The firm finances its assets with $1,110,000 debt (costing 5.5 percent) and 211,000 shares of stock selling at $10.00 per share. The firm is considering increasing its debt by $900,000, using the proceeds to buy back 86,000 shares of stock. The firm is in the 40% tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $561,000.
Calculate EPS before and after the change in capital structure and indicate changes in EPS. (Round your answers to 4 decimal places)
EPS before =
EPS after =
Difference =
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