Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Reliable Gearing currently is all-equity-financed. It has 10,000 shares of equity outstanding, selling at $119 a share. The firm is considering a capital restructuring. The

Reliable Gearing currently is all-equity-financed. It has 10,000 shares of equity outstanding, selling at $119 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $238,000 with the proceeds used to buy back stock. The high-debt plan would exchange $476,000 of debt for equity. The debt will pay an interest rate of 12%. The firm pays no taxes. a. What will be the debt-to-equity ratio if it borrows $238,000? (Round your answer to 2 decimal places.) b. If earnings before interest and tax (EBIT) are $117,000, what will be earnings per share (EPS) if Reliable borrows $238,000? (Round your answer to 2 decimal places.) c. What will EPS be if it borrows $476,000?

(Round your answer to 2 decimal places.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Theory And Practice

Authors: Eugene F. Brigham, Michael C. Ehrhardt

10th Edition

0030329922, 9780030329920

More Books

Students also viewed these Finance questions