What will be the debt-to-equity ratio

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Reference no: EM13927558

Reliable Gearing currently is all-equity-financed. It has 28,000 shares of equity outstanding, selling at $100 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $380,000 with the proceeds used to buy back stock. The high-debt plan would exchange $580,000 of debt for equity. The debt will pay an interest rate of 10%. The firm pays no taxes.

a. What will be the debt-to-equity ratio if it borrows $380,000? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Debt-to-equity ratio

b. If earnings before interest and tax (EBIT) are $290,000, what will be earnings per share (EPS) if Reliable borrows $380,000? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

EPS $

c. What will EPS be if it borrows $580,000? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

EPS $

Reference no: EM13927558

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