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The firm was considering buying back 625,000 shares of stock outstanding at $16 per share. This would represent $10 million in total. The funds to purchase the shares would be acquired from a new bond issue that would carry an interest rate of 11.25 percent. The bond would have a 15-year life. The firm was in a 34 percent tax bracket a. Project EPS for 20X Y assuming that sales increase by $500,000. Use Table 39 as the model for the calculation. Further assume that the capital structure is not changed. b. By what percent did EPS increase from 20XX to 20XY? c. Now assume S10 million of debt replaces 625.000 shares of common stock as described in the case. The interest on the new debt will be 11.250 percent. What will projected EPS be for 20XY based on the anticipated sales increase of $500.000 d. Based on your answer to part c, by what percent would EPS increase from 20XX to 20XY? c. Compute the degree of financial leverage (DFL) for the answers to parts and parte 1. Compute degree of combined leverage (DCL) for the answer to parta and the answer to parte 8. What is the total debt-to-total-assets ratio as shown in the 20XX balance sheet (Table 2 What will be if $10 million worth of shareholders' equity is replaced with debt? h. What do you think might happen to the share price as a result of replacing S10 million worth of shareholders' equity with debt? Consider any relevant factors

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