Donaldsen International is an all-equity firm with a current share price of $12.50 and 10,000 shares outstanding. Management is considering issuing $50,000 of debt at an interest rate of 6.5 percent and using the proceeds to repurchase shares. It is felt that the company will have earnings before interest and taxes (EBIT) of $30,000. The company tax rate is 30%. What will the earnings per share (EPS) be if the debt is issued?

You are comparing two financial policies. The first is all equity. The second involves the use of $2 million of debt. The break-even point between these two policies occurs when the earnings before interest and taxes (EBIT) is $450,000. Given this, it is accurate to say that leverage _____ beneficial to the firm when EBIT is $325,000 and _____ beneficial when EBIT is $625,000.

A company has 400,000 shares outstanding at a market price of $6 each. The company also has 20,000 bonds outstanding each with a face value of $100, and a market price of $113.

What is the firm's equity ratio?