Albine Inc. has no debt. It has 10,000 shares of equity outstanding with a market price...

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Albine Inc. has no debt. It has 10,000 shares of equity outstanding with a market price of $100. It is considering two alternative recapitalization plans. The low debt plan calls for issuing $200,000 of debt while the high debt plan would imply issuing $400,000 of debt. In both cases the cost of debt would be 10 percent. The firm does not pay any tax. Question If EBIT will be equal to $100,000, what would EPS be under each of the two recapitalization plans? Which plan do you chose? Explain and justify your decision. Albine Inc. has no debt. It has 10,000 shares of equity outstanding with a market price of $100. It is considering two alternative recapitalization plans. The low debt plan calls for issuing $200,000 of debt while the high debt plan would imply issuing $400,000 of debt. In both cases the cost of debt would be 10 percent. The firm does not pay any tax. Question If EBIT will be equal to $100,000, what would EPS be under each of the two recapitalization plans? Which plan do you chose? Explain and justify your decision.

Answer rating: 100% (QA)

To calculate the earnings per share EPS under each of the two recapitalization plans we need to cons... View the full answer