Suppose a firm has an EBIT of $1,400,000 and finances its assets with $6,000,000 of debt...

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Suppose a firm has an EBIT of $1,400,000 and finances its assets with $6,000,000 of debt at 6 percent interest and 300,000 shares of stock selling at $12.50 a share. To lessen the risk associated with this financial leverage, the firm is thinking about reducing its debt by $3,000,000 by selling more stock. The firm is in the 35 percent tax bracket. The change in the capital structure won't have any effect on the firm's operations; thus, EBIT will remain at $1,400,000. What's the change in the firm's EPS from this change in capital structure? Suppose a firm has an EBIT of $1,400,000 and finances its assets with $6,000,000 of debt at 6 percent interest and 300,000 shares of stock selling at $12.50 a share. To lessen the risk associated with this financial leverage, the firm is thinking about reducing its debt by $3,000,000 by selling more stock. The firm is in the 35 percent tax bracket. The change in the capital structure won't have any effect on the firm's operations; thus, EBIT will remain at $1,400,000. What's the change in the firm's EPS from this change in capital structure?

Answer rating: 100% (QA)

To calculate the change in the firms EPS Earnings Per Share from the change in capital structure we ... View the full answer