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Calculate EPS before and after change in capital structure

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Reference no: EM132825465

Question - Consider a firm with an EBIT of $11,700,000. The firm finances its assets with $52,400,000 debt (costing 7.2 percent) and 11,200,000 shares of stock selling at $6.00 per share. The firm is considering increasing its debt by $26,100,000, using the proceeds to buy back 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 $11,700,000. Calculate the EPS before and after the change in capital structure and indicate changes in EPS.

Reference no: EM132825465

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