Eisner Amusement Parks reported the following data in its most recent annual report: Sales .........$42.5 million Net

Question:

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?

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...