Will trading equity for debt help the industry achieve

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Reference no: EM1385084

Q. The Tanenbaum Tea Corporation wants to show the stock market an EPS of $3 per share, but doesn't expect to be able to improve profitability over illustrate what is reflected in the financial plan for next year. The plan is partially reproduced as follows.

Tanenbaum Tea Corporation
Financial Projection 200X
($000)

EBIT $18,750 Debt $ 13,000
Interest (@12%) 1,560 Equity 97,000
EBT $17,190 Capital $110,000
Tax (38%) 6,532
EAT $10,658 #shares = 3,700,000

Tanenbaum's stock sells at book value. Will trading equity for debt help the industry achieve its EPS goal and if so illustrate what debt level will produce the desired EPS?

Reference no: EM1385084

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