What is effect on earnings per share associated with ebit

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Miller Ltd is considering changing its capital structure from 100% equity to 80% equity (i.e. 20% debt relative to total assets) by repurchasing and cancelling shares. The number of shares outstanding are currently 10,000, but will drop to 8,000 after the repurchase. Miller will fund the repurchase by borrowing funds at an 8% interest rate. Total assets are $200,000, EBIT is $25,000, and the company tax rate is 30%. What is the effect on earnings per share associated with the EBIT of $25,000 for the new alternative capital structure? A. EPS will decrease to $2.18. B. EPS will decrease to $1.53. C. EPS will increase to $0.82. D. EPS will increase to $2.73. E. EPS will increase to $1.91.

Reference no: EM131333860

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