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The leverage recapitalization transaction

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Reference no: EM133227627

LVI is currently an all-equity firm. It expects to generate earnings before interest and taxes (EBIT) of $10 million over the next year. Currently, LVI has 10 million shares outstanding, and its stock is trading for a price of $7.50 per share. LVI is considering changing its capital structure by borrowing $30 million at an interest rate of 10% and using the proceeds to repurchase shares.

1. How many shares can LVI purchase?

2. What is the EPS after the leverage recapitalization transaction?

3. What is the Share price after the transaction?

4. Did firm value change as a result of this transaction?

Reference no: EM133227627

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