Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider a firm with an EBITDA of $ 1 6 , 2 0 0 , 0 0 0 and an EBIT of $ 1 2

Consider a firm with an EBITDA of $16,200,000 and an EBIT of $12,100,000. The firm finances its assets with $53,200,000 debt (costing 7.6 percent all of which is tax deductible) and 11,600,000 shares of stock selling at $8.00 per share. The firm is considering increasing its debt by $26,600,000, using the proceeds to buy back shares of stock. The firms 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 $12,100,000.
Calculate the EPS before and after the change in capital structure and indicate changes in EPS. Round to 3 decimial points
EPS before i calculated as 0.549 which is correct
i calculated the EPS after as 0.576 which is deemed incorrect
and the change in EPS was 0.027 which is also deemed wrong im just confused of what im doing wrong?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Finance

Authors: Jeff Madura

4th Edition

0136117007, 9780136117001

More Books

Students also viewed these Finance questions

Question

Why must in-service training or on-the-job education be continuing?

Answered: 1 week ago