Bailey Bar Pty Ltd is an all-equity company. Currently, Bailey Bar has 200,000 shares outstanding at the
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Bailey Bar Pty Ltd is an all-equity company. Currently, Bailey Bar has 200,000 shares outstanding at the market price of $20 each. Bailey Bar is considering restructuring the capital by issuing $1 million of debt at 5%p.a interest rate and using the proceeds to repurchase the shares at the market price. EBIT is expected to be $750,000 by the end of this year. Bailey Bar is subjected to a 30% tax rate.
- Calculate the number of shares outstanding after the debt issuance. What is the debt ratio and debt-to-equity ratio after the capital restructure?
- Calculate the EPS and ROE before and after the debt issuance.
- Calculate the present value of the Interest tax shield assuming the debt has a term of 8 years.
Related Book For
Horngrens Financial And Managerial Accounting The Financial Chapters
ISBN: 9780134486840
6th Edition
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura
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