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Problem 2-23 Income Statement (LG2-1) Consider a firm with an EBIT of $1,016,000. The firm finances its assets with $4,820,000 debt (costing 7.6 percent) and
Problem 2-23 Income Statement (LG2-1) Consider a firm with an EBIT of $1,016,000. The firm finances its assets with $4,820,000 debt (costing 7.6 percent) and 216,000 shares of stock selling at $18.00 per share. To reduce risk associated with this financial leverage, the firm is considering reducing its debt by $2,700,000 by selling additional shares of stock. The firm s in the 40 percent tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $1,016,000. Calculate the EPS before and after the change in capital structure and indicate changes in EPS. (Negative answer should be indicated by a minus sign. Round your answers to 2 decimal places.)
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