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HiLo, Inc., doesn’t face any taxes and has $319.75 million in assets, currently financed entirely with equity. Equity is worth $20 per share, and book value of equity is equal to market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below:
State Pessimistic Optimistic
Probability of state 0.45 0.55
Expected EBIT in state $ 1,534,800 $ 16,754,900
The firm is considering switching to a 20-percent-debt capital structure, and has determined that it would have to pay a 9 percent yield on perpetual debt in either event. What will be the level of expected EPS if the firm switches to the proposed capital structure? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Expected EPS $__________
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At the end of this year you deposit $3000 into a saving account. Each year you plan to increase the amount by 2%. If you can earn 5% in your savings account, how much money will you have in 20 years? Suppose you have saved $1,000,000. You plan to wit..
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