Question
Consider a firm with an EBIT of $569,000. The firm finances its assets with $1,190,000 debt (costing 6.3 percent and is all tax deductible) and
Consider a firm with an EBIT of $569,000. The firm finances its assets with $1,190,000 debt (costing 6.3 percent and is all tax deductible) and 219,000 shares of stock selling at $18.00 per share. The firm is considering increasing its debt by $900,000, using the proceeds to buy back 94,000 shares of stock. The firm's tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $569,000.
Calculate the change in the firms EPS from this change in capital structure.
EPS before?
EPS after?
EPS difference?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Corporate Finance Governance And Business Cycles Theory And International Comparisons
Authors: Robert E. Krainer
1st Edition
0444510494, 9780444510495
