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Consider a firm with an EBIT of $12500000 The firm finances its assets with $54000000 debt costing 8 percent and 12000000 shares of stock selling at $600 per share The firm is considering

Consider a firm with an EBIT of $12,500,000. The firm finances its assets with $54,000,000 debt (costing 8 percent) and 12,000,000 shares of stock selling at $6.00 per share. The firm is considering increasing its debt by $27,000,000, using the proceeds to buy back shares of stock. The firm is in the 40 percent tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $12,500,000.

Calculate the EPS before and after the change in capital structure and indicate changes in EPS. (Round your answers to 3 decimal places.)

   
  EPS before $   
  EPS after $   
  Difference $   

Apr 11 2020 View more View Less

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