Estimate the debt to equity ratio

Assignment Help Finance Basics

Reference no: EM1363339

RG is currently all equity financed. It has 10,000 shares of equity outstanding, selling at $100 share. The firm is considering capital restructuring. The low debt plan calls for debt issue of $200,000 with the proceeds used to buy back stock. The high-debt plan would exchange $400,000 of debt equity. The debt will pay an interest rate of 10 percent. The firm pays no taxes.

a. what will be the debt to equity ratio after each possible restructuring
b. If the earnings before interest and tax (EBIT) will be either $90,000 or $130,000 what will be the earnings per share (EPS) for each financing mix for both possible values of ebit? If both scenarios are equally likely, what is the expected (i.e. average) EPS under each financing mix? Is the high debt mix preferable?
c. Suppose the earnings before interest and taxes is $100,000. What is the EPS under each financing mix? Why are they the same is this particular case.

Can you provide me with exact the sequence of formulas to resolve this problem?

Reference no: EM1363339

Questions Cloud

Use techniques to read bouble value from text box : Use the techniques to read the Bouble value from a TextBox. [Note: ou may need to use methods Convert.ToDouble and Convert.ToDecimal when doing calculations with the number of hours and charges, respectively.

Synopsis on the videoclip of antibiotic therapy : Search the internet and watch a videoclip relating to antibiotic therapy. Examples may include antibiotic resistance, pre-operative prophylactic antibiotics or others. Write a synopsis on the videoclip you watched.

What was the final temperature of the coins : What was the final temperature of the coins. What is the train's acceleration after its wheel begins to stick.

Explain drew takes advantage of information : Explain Drew takes advantage of this information to buy Energy stock from Gert and after the discovery is announced, to sell the stock to Holly at a profit.

Estimate the debt to equity ratio : RG is currently all equity financed. It has 10,000 shares of equity outstanding, selling at $100 share. The company is planning capital restructuring. The low debt plan calls for debt issue of $200,000 with the proceeds used to buy back stock.

Computing budgeted cost of work performed : Provide and show all answers and step by step work to obtain the answer, not skipping any steps. Show all equations, acronyms (ie ETC, ACWP, etc), and if applicable, a description of how you came to the answer.

Development of united states healthcare facilities : Describe the development of U.S. healthcare facilities in the 20th and early 21st centuries. What have been the major developments and primary drivers of change in U.S. healthcare facilities over the past one hundred years?

Illustrate what is fast food elasticity of demand : Illustrate what is Fast Food's elasticity of demand. What does elastic, inelastic, or neither tell us about the elasticity of demand.

Create visual basics application-functionality of gas pump : Create an visual basics application that simulates the functionality of the gas pump. The user enters the number of gallons to purchase and clicks the desired grade.

User Account

All Pages