Eisner Amusement Parks reported the following data in its most
Eisner Amusement Parks reported the following data in its most recent annual report:
Sales ......... $42.5 million
Net income........ $3.8 million
Dividends ........ $1.1 million
Assets ......... $50.0 million
Eisner is financed 100% with equity. What is the company’s sustainable growth rate? Suppose that Eisner issued bonds to the public and used the proceeds to repurchase half of its outstanding shares. This new capital structure would create additional interest expenses of $2 million. Assuming that the company faces a 35% tax rate, what impact would this restructuring have on its sustainable growth rate?
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