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 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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