Consider a firm with an EBITDA of $1,100,000 and an EBIT of $1,000,000. The firm finances its assets with $4,660,000 debt (costing 8.2 percent, all of which is tax deductible) and 212,000 shares of stock selling at $14 per share. To reduce risk associated with this financial leverage, the firm is considering reducing its debt by $2,660,000 by selling additional shares of stock. The firm's tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $1,000,000. Calculate the EPS before and after the change in capital structure and indicate changes in EPS. (Do not round intermediate calculations. Round your answers to 2 decimal places.) EPS before EPS after Changes in debt
Consider a firm with an EBITDA of $1,100,000 and an EBIT of $1,000,000. The firm finances its assets with $4,660,000 debt (costing 8.2 percent, all of which is tax deductible) and 212,000 shares of stock selling at $14 per share. To reduce risk associated with this financial leverage, the firm is considering reducing its debt by $2,660,000 by selling additional shares of stock. The firm's tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $1,000,000. Calculate the EPS before and after the change in capital structure and indicate changes in EPS. (Do not round intermediate calculations. Round your answers to 2 decimal places.) EPS before EPS after Changes in debt
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter6: Accounting For Financial Management
Section: Chapter Questions
Problem 11P: The Berndt Corporation expects to have sales of 12 million. Costs other than depreciation are...
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![Consider a firm with an EBITDA of $1,100,000 and an EBIT
of $1,000,000. The firm finances its assets with $4,660,000
debt (costing 8.2 percent, all of which is tax deductible) and
212,000 shares of stock selling at $14 per share. To reduce
risk associated with this financial leverage, the firm is
considering reducing its debt by $2,660,000 by selling
additional shares of stock. The firm's tax rate is 21 percent.
The change in capital structure will have no effect on the
operations of the firm. Thus, EBIT will remain at $1,000,000.
Calculate the EPS before and after the change in capital
structure and indicate changes in EPS. (Do not round
intermediate calculations. Round your answers to 2
decimal places.)
EPS before
EPS after
Changes in debt](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5db834e7-bfca-42f8-9e31-aa67a7d956e9%2F3d8c149e-d665-4e5a-aaab-f99e01e71eab%2F27vtuzd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider a firm with an EBITDA of $1,100,000 and an EBIT
of $1,000,000. The firm finances its assets with $4,660,000
debt (costing 8.2 percent, all of which is tax deductible) and
212,000 shares of stock selling at $14 per share. To reduce
risk associated with this financial leverage, the firm is
considering reducing its debt by $2,660,000 by selling
additional shares of stock. The firm's tax rate is 21 percent.
The change in capital structure will have no effect on the
operations of the firm. Thus, EBIT will remain at $1,000,000.
Calculate the EPS before and after the change in capital
structure and indicate changes in EPS. (Do not round
intermediate calculations. Round your answers to 2
decimal places.)
EPS before
EPS after
Changes in debt
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