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Company A is equity financed with 10000 shares of equity outstanding selling for $100 a share. It is restructuring. Low debt plan is to issue debt of $200,000 with proceeds to buy the stock. The high debt lan would exchange $400,000 of debt for equity. The debt will pay an interest rate of 10%. Company A pays no taxes.
a What is the debt to equity ratio after each restructuring?
b. If EBIT is either $90,000 or $130,00 what is the earning per share for each financing mix for both possible value of EBIT?
c) Suppose EBIT is $100,000 what is EPS under each financing mix?
d. Why is it the same in this case?
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Morgan Jennings, a geography professor, invests $50,000 in a parcel of land that is expected to increase in value by 12 percent per year for the next five years. He will take the proceeds and provide himself with a 10-year annuity a 12 percent int..
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