A firm with no leverage plans to issue debt, and use the capital raised to buy back
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Question:
A firm with no leverage plans to issue debt, and use the capital raised to buy back shares of its stock. Assuming the firm's risk does not increase too much, how will an increase in leverage affect the firm?
For each of the following firm characteristics, choose which you believe is the likeliest effect that increasing debt will have on the characteristic's value. Possible effects are to increase the value of the characteristic, decrease its value, leave it unchanged, or can't be predicted.
Earnings per share
Return on Assets
Return on Equity
Interest Coverage
Sum of Earnings Available to Security Holders and Income Taxes
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