Question
Consider a firm with an EBIT of $860,000. The firm finances its assets with $2,600,000 debt (costing 7.4 percent and is all tax deductible) and
Consider a firm with an EBIT of $860,000. The firm finances its assets with $2,600,000 debt (costing 7.4 percent and is all tax deductible) and 500,000 shares of stock selling at $5.00 per share. To reduce the firm's risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 300,000 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 $860,000.
EPS before?
EPS after?
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
Bond Markets Analysis and Strategies
Authors: Frank J.Fabozzi
9th edition
133796779, 978-0133796773
