Should the ceo issue the debt and buy back the stock

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Reference no: EM131559110

Williams Corp is analyzing whether to take on debt to increase EPS. Currently, the firm is an all-equity firm with $2.0 million in market value and 200,000 shares outstanding. The CFO is thinking of selling $1,000,000 of debt financing and using the proceeds to buy back stock. The cost of debt is 8% annually. If the firm’s current EBIT is $140,000, should the CEO issue the debt and buy back the stock? Additionally what is the break-even EBIT for these two capital structure scenarios?

Reference no: EM131559110

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