What is earnings per share under the current structure

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Reference no: EM131361207

Frankie and Johnny’s Cafe is an all-equity firm with $650,000 in equity. Their daughter, Cricket, just got finished taking BA3500. Cricket suggested to her mom and dad that they change the capital structure by taking on some debt and buying back some of their own shares. Frankie and Johnny said that they would consider a loan of $400,000 if Cricket could show them that it was good for the company.

Cricket collected the following data:

Expected EBIT for next year 300,000 Price per share $40

Loan interest rate 10% # of shares outstanding 16,250

Tax rate 35%

What is earnings per share under the current structure? ____________

What would earnings per share be under the proposed structure? ____________

Should Frankie and Johnny do the restructuring? ______________

Reference no: EM131361207

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