Burtronics Inc. is in the process of determining its optimal level of debt. Burtronics is...
90.2K
Verified Solution
Link Copied!
Question
Accounting
Burtronics Inc. is in the process of determining its optimal level of debt. Burtronics is a zero growth firm with all of its net income paid in dividend. Complete the following table, and recommend the optimal debt level for Burtronics. Make sure to show all your work, restrict your answers to the alternatives given, and justify your answer.
|
Debt level* |
$400,000 |
$700,000 |
|
Cost of debt |
9% |
12% |
|
Cost of equity |
12% |
15% |
|
EBIT |
$200,000 |
$200,000 |
|
Interest Expenses |
$36,000 |
$ |
|
EBT |
$164,000 |
$ |
|
Taxes (40%) |
$65,600 |
$ |
|
EAT |
$98,400 |
$ |
|
Value of equity |
$820,000 |
|
|
Value of debt |
$ |
$700,000 |
|
Value of the Burtronics |
|
|
|
Stock price |
|
|
|
Shares outstanding |
16,000 |
|
* The difference of $300,000 in debt will be used to repurchase shares.
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
- Unlimited Question Access with detailed Answers
- Zin AI - 3 Million Words
- 10 Dall-E 3 Images
- 20 Plot Generations
- Conversation with Dialogue Memory
- No Ads, Ever!
- Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Other questions asked by students
StudyZin's Question Purchase
1 Answer
$0.99
(Save $1 )
One time Pay
- No Ads
- Answer to 1 Question
- Get free Zin AI - 50 Thousand Words per Month
Unlimited
$4.99*
(Save $5 )
Billed Monthly
- No Ads
- Answers to Unlimited Questions
- Get free Zin AI - 3 Million Words per Month
*First month only
Free
$0
- Get this answer for free!
- Sign up now to unlock the answer instantly
You can see the logs in the Dashboard.