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Calculate the EPS for no debt and with the debt situation

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Q1. The LOLA is an all-equity firm with 40,000 shares of stock outstanding at a market price of $50 a share. The company's earnings before interest and taxes are $160,000. LOLA has decided to add leverage to its financial operations by issuing $200,000 of debt at 7 percent interest and using the proceeds to repurchase shares of stock. Calculate the EPS for no debt and with the debt situation. (Ignore taxes.)

A) $3.07 - $3.12 B) $4.06 - $4.14 C) $3 - $3.029 D) $4 - $4.056

Q2 The LOLA is an all-equity firm with 40,000 shares of stock outstanding at a market price of $50 a share. The company's earnings before interest and taxes are $160,000. LOLA has decided to add leverage to its financial operations by issuing $200,000 of debt at 7 percent interest and using the proceeds to repurchase shares of stock. Calculate the debt/equity ratio when the company issues debt (Ignore taxes.)

A) 11.11% B) 12.21% C) 1.9% D) 19.19%

Reference no: EM132628637

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