Create an Account

Already have account?

Forgot Your Password ?

Home / Questions / Consider a firm with an EBIT of $850000 The firm finances its assets with $2500000 debt co...

Consider a firm with an EBIT of $850000 The firm finances its assets with $2500000 debt costing 75 percent and 400000 shares of stock selling at $500 per share To reduce the firms risk

Consider a firm with an EBIT of $850,000. The firm finances its assets with $2,500,000 debt (costing 7.5 percent) and 400,000 shares of stock selling at $5.00 per share. To reduce the firm’s risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 200,000 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 $850,000. Calculate the change in the firm’s EPS from this change in capital structure.

 

Apr 11 2020 View more View Less

Answer (Solved)

question Subscribe To Get Solution

Related Questions