You have 400,000 shares outstanding at $20 per share and 100% equity financing. You propose...
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You have 400,000 shares outstanding at $20 per share and 100% equity financing. You propose to borrow $4,000,000 of debt at an 10% interest rate. The money raised will buy back 200,000 of our shares at $20 per share. If there is no income tax and the EBIT is $1,000,000, record the EPS for the following capital structures to the nearest $0.01 per share without the dollar sign, e.g., 12.38. Record the indifference EBIT to the nearest dollar.
You have 400,000 shares outstanding at $20 per share and 100% equity financing. You propose to borrow $4,000,000 of debt at an 10% interest rate. The money raised will buy back 200,000 of our shares at $20 per share. If there is no income tax and the EBIT is $1,000,000, record the EPS for the following capital structures to the nearest $0.01 per share without the dollar sign, e.g., 12.38. Record the indifference EBIT to the nearest dollar. 1. Original capital structure 2. Proposed capital structure 3. The proposed capital structure will :he variability of the earnings per share 4. What is the indifference EBIT for the two capital structures? 5. If the EBIT is higher than the indifference EBIT, the will have a higher EPS
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