Consider the following example: Ignoring taxes, assume that Trans Am Corp. currently has no debt in its capital structure. The CFO, Ms. Morris, is considering a restructuring that would involve issuing debt and using the proceeds to buy back some of the outstanding equity. The table below presents both the current and proposed capital structures. Using this information, investigate the impact that financial leverage would have on the firm by comparing its current capital structure to the proposed capital structure (under 3 different scenarios). Under an expected scenario, EBIT is projected to be $1 million. In the recession scenario, EBIT is expected to fall to $500,000. In the expansion scenario, it is expected to rise to $1.5 million. Current Proposed $8,000,000 $8,000,000 $0 $4,000,000 $8,000,000 $4,000,000 Assets Debt Equity Debt/Equity Ratio Share Price Shares Outstanding Interest rate 0 $20 400,000 1096 $20 200,000 10% Consider the following example: Ignoring taxes, assume that Trans Am Corp. currently has no debt in its capital structure. The CFO, Ms. Morris, is considering a restructuring that would involve issuing debt and using the proceeds to buy back some of the outstanding equity. The table below presents both the current and proposed capital structures. Using this information, investigate the impact that financial leverage would have on the firm by comparing its current capital structure to the proposed capital structure (under 3 different scenarios). Under an expected scenario, EBIT is projected to be $1 million. In the recession scenario, EBIT is expected to fall to $500,000. In the expansion scenario, it is expected to rise to $1.5 million. Current Proposed $8,000,000 $8,000,000 $0 $4,000,000 $8,000,000 $4,000,000 Assets Debt Equity Debt/Equity Ratio Share Price Shares Outstanding Interest rate 0 $20 400,000 1096 $20 200,000 10%