Question
The U (Unleveraged) company presents the following information: (a) Expected EBIT=50 000; (b) Standard Deviation of EBIT=40 000; (c) Number of common stock=20 000; d)
The U (Unleveraged) company presents the following information: (a) Expected EBIT=50 000; (b) Standard Deviation of EBIT=40 000; (c) Number of common stock=20 000; d) EPS =1.50; (e) Standard Deviation per share of common stock=1.20; and (f) Tax rate = 40%. The above company is just about to change its capital structure by replacing 75% of its common stock with $150 000 of new Debt at 12% annual rate. First make the Income Statement for the Leveraged Company, starting with EBIT=50 000 and ending with EPSL = ?
For the next item, assume that he above company will have zero future growth of EBIT and that the required annual return on the Unleveraged stock is 15%. Now the market value per share of the Leveraged stock is ????
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started