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Suppose the ABC Corporation has decided in favor of a capital restructuring that involves increasing its existing $5 million in debt to $25 million, and
Suppose the ABC Corporation has decided in favor of a capital restructuring that involves increasing its existing $5 million in debt to $25 million, and repurchasing common shares of stock in an amount of $20 million. The interest rate on the debt is 12 percent and is not expected to change. The firm currently has 1 million shares outstanding, and the price per share is $40. If the restructuring is expected to increase the ROE, what is the minimum level for EBIT that ABC's management must be expecting? Ignore taxes in your answer.
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