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Reliable Gearing currently is all-equity-financed. It has 10,000 shares of equity outstanding, selling at $97 a share. The firm is considering a capital restructuring.
Reliable Gearing currently is all-equity-financed. It has 10,000 shares of equity outstanding, selling at $97 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $194,000 with the proceeds used to buy back stock. The high-debt plan would exchange $388,000 of debt for equity. The debt will pay an interest rate of 9%. The firm pays no taxes. a. What will be the debt-to-equity ratio if it borrows $194,000? Note: Round your answer to 2 decimal places. b. If earnings before interest and tax (EBIT) are $103,000, what will be earnings per share (EPS) if Reliable borrows $194,000? Note: Round your answer to 2 decimal places. c. What will EPS be if it borrows $388,000? Note: Round your answer to 2 decimal places. a. Debt-to-equity ratio EPS b. c. EPS
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