Question: Question 9 - [10 points) AAA has 50 million shares outstanding, no debt and no preferred stocks. The firm is considering issuing $100 million of
Question 9 - [10 points) AAA has 50 million shares outstanding, no debt and no preferred stocks. The firm is considering issuing $100 million of senior bonds at the interest rate of 10%. AAA's EBIT has average of $120 million and standard deviation of $30 million. The firm's tax rate is 20%. The financial analysts in Wall Street forecast the firm's EPS to be $1.3. Calculate the probability that AAA misses the analysts forecast if they issued the $100 million of bonds. Hint: you should start by finding the EBIT that gives the firm an EPS of $1.3 after they issued the bonds. Then, proceed with the probability calculations
Step by Step Solution
There are 3 Steps involved in it
1 Expert Approved Answer
Step: 1 Unlock
Question Has Been Solved by an Expert!
Get step-by-step solutions from verified subject matter experts
Step: 2 Unlock
Step: 3 Unlock
