Question
Hello. I need help with Questions 2-4. I have already answered #1. It is provided because of the variables that are needed to calculate #'s
Hello. I need help with Questions 2-4. I have already answered #1. It is provided because of the variables that are needed to calculate #'s 2 & 3.
1.Anall-equity firm currently has3,000,000 shares of stock outstanding and is considering borrowing$8,000,000 at6% and buying backone-half of those shares. What is thebreak-even EBIT assuming a tax rate ofzero?
A. $1,440,000
B. $460,000
C. $960,000 Your answer is correct.
D. $2,880,000
2.For the firm in #1 what is its EPS(a) before; and(b) after borrowing the$8,000,000 if its tax rate is zero and its EBIT is $1,000,000?
A. $0.35 $0.33
B. $0.35; $0.48
C. $0.24; $0.24
D. $0.33; $0.35
3.For the firm in#1 what is its EPS(a) before; and(b) after borrowing the$8,000,000 if its tax rate is zero and its EBIT is $600,000?
A. $0.20; $0.08
B. $0.60; $0.80
C. $0.08 $0.20
D. $0.80; $0.60
4.If the company described in questions 1- 3 expects its annual EBIT to be a constant$1,000,000 for the foreseeablefuture, should it undertake the capitalrestructuring?
A. No, because the EPS is above the EBIT.
B. No, because the EBIT is below thebreak-even EBIT.
C. Yes, because the EBIT is above thebreak-even EBIT.
D. Yes, because the EPS is equal to the EBIT.
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