Question: There are two capital structure combinations, given below. Do the followings: 10 Calculate the empty cells. Analyze the results in the Expected Scenario. Discuss the
- There are two capital structure combinations, given below. Do the followings:10
- Calculate the empty cells.
- Analyze the results in the Expected Scenario. Discuss the possible benefit due to leverage.
- Work for Expansion (10% increased EBIT from Expected) and for Recession (10% reduced EBIT from Expected).
- Plot the results in graphs, by plotting equity returns as dependent variable and EBIT as an independent variable.
- Analyze the results in all possible scenario and conclude your discussion about the effects of financial leverage.
|
| Current | Proposed |
|
| No Debt | With Debt |
| Assets | 10,000,000 | 10,000,000 |
| EBIT as Expected | 1,250,000 | 1,250,000 |
| Debt | 0 | 4,500,000 |
| Interest |
|
|
| Equity |
|
|
| Net Income |
|
|
| Debtequity ratio |
|
|
| ROE |
|
|
| Share price | $25 | $25 |
| EPS |
|
|
| Shares Outstanding | 500,000 | 250,000 |
|
|
|
|
| Interest Rate | 9% | 9% |
|
|
|
|
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