Accounting Homework Help
Consider a firm with an EBIT of $850,000. The firm finances its assets with $2,500,000 debt (costing 7.5 percent)
Consider a firm with an EBIT of $850,000. The firm finances its assets with $2,500,000 debt (costing 7.5 percent)
Get Your Custom Essay Written From Scratch
We have worked on a similar problem. If you need help click order now button and submit your assignment instructions.
Just from $13/Page
and 400,000 shares of stock selling at $5.00 per share. To reduce the firm’s risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 200,000 shares of stock. The firm is in the 40 percent tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $850,000.
EPS Before:
EPS After:
Difference:
