Calculate next year''s eps using different leverage ratios

Reference no: EM13892756

The CEO of Ink Imagination (II) wants to calculate next year's EPS using different leverage ratios. II's total assets are $5 million, and its marginal tax rate is 40 percent. The company has estimated next year year's EBIT for three possible economic states: $1.2 million with a 0.2 probability, $800,000 with a 0.5 probability, and $500,000 with a 0.3 probability. Calculate II's expected EPS, standard deviation, and coefficient of variation for each of the following capital structures. Which capital structure do you recommend and why?

Total Assets = $5,000,000
Marginal Tax Rate = 40%
Estimated EBIT
- Possibility 1: $1,200,000 with a .2 probability
- Possibility 2: $800,000 with a .5 probability
- Possibility 3: $500,000 with a .3 probability

Determine:

Leverage (Debt to Assets)	Interest Rate	Shares of Stock Outstanding
20%	6%	300,000
50%	10%	200,000

Earnings per Share?

Standard Deviation?

Coefficient of Variation?

Reference no: EM13892756

Questions Cloud

Explain two factors that might influence those rankings : Determine which two states rank the best and which two states rank the worst for those indicators. Describe factors you believe might contribute to those relative rankings among the states.

What will its eps be sales turn out to be 10 percent lower : Enigma Enery has forecasted that its EPS will be $4 per share this year. If the firm's degree of operating leverage (DOL) is 3.0x and its degree of financial leverage (DFL) is 2.0x, what will its EPS be if sales turn out to be 10 percent lower than e..

Last two columns for a post closing trial balance : The adjusted trial balance of Karise Repairs on December 31, 2013, follows.

Diversity among playwrights and their plays : diversity among playwrights and their plays

Calculate next year''s eps using different leverage ratios : The CEO of Ink Imagination (II) wants to calculate next year's EPS using different leverage ratios. II's total assets are $5 million, and its marginal tax rate is 40 percent. The company has estimated next year year's EBIT for three possible economic..

Effectiveness of the website : Visit a website of your choice. Analyze the effectiveness of the website with an eye on the stakeholders and the objectives of the site.

Patient population affected: who was most at risk : Patient population affected: who was most at risk? Has that changed? In your region, what are the populations most at risk of contracting this disease now?

Brand names so important in marketing : Why are brand names so important in marketing? Provide examples of good and poor branding. Explain these selections. (Google "good and poor brand names" for help on these questions and be sure to cite the sources you use.)

The implied volatility of a single stock : Explain why VIX is smaller than the implied volatility of a single stock.

User Account

All Pages