Item4 5points Item 4 Daddi Mac, Inc , doesn't face any taxes and has $250 million in assets, currently financed entirely with equity Equity is worth $13 per share, and book value of equity is equal to market value of equity Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities shown as follows State Recession Average Boom Probability of state 0 05 0 25 0 70 Expected EBIT in state $ 5 million $ 10 million $ 17 million The firm is considering switching to a 25 percent debt capital structure, and has determined that they would have to pay a 10 percent yield on perpetual debt What will be the standard deviation in EPS if they switch to the proposed capital structure Multiple Choice $0 33 $0 26 $0 21 $0 16

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Question: Item4 5points Item 4 Daddi Mac, Inc., doesn't face any taxes and has $250 million in assets, currently financed entirely with equity. Equity is worth

Item4

5points

Item 4

Daddi Mac, Inc., doesn't face any taxes and has $250 million in assets, currently financed entirely with equity. Equity is worth $13 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities shown as follows:

State	Recession			Average			Boom
Probability of state		0.05			0.25			0.70
Expected EBIT in state	$	5	million	$	10	million	$	17	million

The firm is considering switching to a 25 percent debt capital structure, and has determined that they would have to pay a 10 percent yield on perpetual debt. What will be the standard deviation in EPS if they switch to the proposed capital structure?Multiple Choice

$0.33
$0.26
$0.21
$0.16

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