Van Inc is an all-equity firm with 10,000 shares of stock outstanding. The market value per share is $20. The CFO is recommending issuing $80,000 of debt. The interest rate on debt is 15%.
a. Given the different EBIT given below, calculate net income, ROE, and EPS with its current capital structure and under CFO's proposal.
Recession= $25,000
Scenario Expected =$50,000
Unexpected= $75,000
b. Determine the indifferent EBIT & its EPS for Van Inc. Explain the capital structure preferences with respect to the indifferent EBIT.

Answer rating: 100% (QA)

a Net Income Current Capital Structure EBIT 50000 Interest Expense 12000 80000 15 Taxes 10000 assuming a tax rate of 20 Net Income 38000 ROE 19 Net In... View the full answer