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I need help with the following portion of the question: part (a) calculating the eps of the debt ratios provided (0,15,30,45,60%) Integrative-Optimal capital structure Medallion
I need help with the following portion of the question: part (a) calculating the eps of the debt ratios provided (0,15,30,45,60%)
Integrative-Optimal capital structure Medallion Cooling Systems, Inc., has total assets of $9,000,000, EBIT of $2,010,000, and preferred dividends of $204,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment: Capital structure debt ratio 0% 15 30 45 60 Cost of debt, de 0% 8.2 8.8 12.2 14.9 Number of common stock shares 205,000 174,000 139.000 110.000 85,000 Required return, 11.8% 13.2 14.3 15.8 20.2 a. Calculate eamings per share for each level of indebtedness. b. Use the equation Po=EPS/r, and the earnings per share calculated in part (a) to calculate a price per share for each level of indebtedness. Debt Ratio 0% EBIT S 2,010,000 Less: Interest S EBT $ $ S Taxes @40% Net profit Less: Preferred dividends S Profits available to common stockholders $ #shares outstanding $ 205,000
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