An all-equity firm currently has 1,000,000 shares of stock outstanding and is considering borrowing $5,000,000 at 10% and buying back one-fourth of those shares. Assume a tax rate of 30% and EBIT is $ 1,500,000. Should this company undertake the capital restructuring and why? O A. Yes, the company's EPS will increase if company borrow money. O B. No, the company's EBIT of $1,500,000 is below industry average. OC. Yes, the company has a healthy EBIT of $1,500,000. O D. No, the company's EPS will decrease if company borrow money.
An all-equity firm currently has 1,000,000 shares of stock outstanding and is considering borrowing $5,000,000 at 10% and buying back one-fourth of those shares. Assume a tax rate of 30% and EBIT is $ 1,500,000. Should this company undertake the capital restructuring and why? O A. Yes, the company's EPS will increase if company borrow money. O B. No, the company's EBIT of $1,500,000 is below industry average. OC. Yes, the company has a healthy EBIT of $1,500,000. O D. No, the company's EPS will decrease if company borrow money.
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 1P
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