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  1. business
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  3. suppose a firm has an ebit of $1,400,000 and finan

Suppose a firm has an EBIT of $1,400,000 and finances its assets with $6,000,000 of...

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Accounting

Suppose a firm has an EBIT of $1,400,000 and finances its assets with $6,000,000 of debt at 6 percent interest and 300,000 shares of stock selling at $12.50 a share. To lessen the risk associated with this financial leverage, the firm is thinking about reducing its debt by $3,000,000 by selling more stock. The firm is in the 35 percent tax bracket. The change in the capital structure won't have any effect on the firm's operations, thus EBIT will remain at $1,400,000. What's the change in the firm's EPS from this change in capital structure?

A. EPS rises by $0.54 per share

B. EPS falls by $0.48 per share

C. EPS falls by $0.36 per share

D. EPS rises by $0.28 per share

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