Reference no: EM132587703
ABC company were performing its Business capital structure fully finance by Equity and now it proposed of finance by debt and equity as per the following table. In addition if the economy Recession, Expected or Expansion will expect EBIT of $500,000, 1,000,000 and 1,500,000 respectively.
Current Proposed
Assets $8,000,000 $8,000,000
Debt $0 $4,000,000
Equity $8,000,000 $4,000,000
Debt/Equity Ratio 0 1
Share Price $20 $20
Shares Outstanding 400,000 200,000
Interest rate 10% 10%
Based on the above data compute:
Question A) the ROE in the three scenario's for both options/ capital structure
Question B) the EPS in the three scenario's for both options/ capital structure
Question C) what is your recommendation in relation to EPS and capital structure based on the given data
Question D) draw the graph break-even point of capital structure
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