What''s the change in the firms eps from this change

Assignment Help Financial Management

Reference no: EM132007105

Suppose a firm has an EBIT of $1,400,000 and finances its assets with $6,000,000 of debt at 6 percent interest and 300,000 shares of stock selling at $12.50 a share.

To lessen the risk associated with this financial leverage, the firm is thinking about reducing its debt by $3,000,000 by selling more stock. The firm is in the 35 percent tax bracket.

The change in the capital structure won't have any effect on the firm's operations, thus EBIT will remain at $1,400,000.

What's the change in the firm's EPS from this change in capital structure.

Reference no: EM132007105

Questions Cloud

Are retained earnings risk-free why or why not : Suppose your firm is going to finance a new project 100% with retained earnings. Is this appropriate? Are retained earnings risk-free? Why or why not?

Prepare journal entries for market research : Assuming Market Research Syndicate owns 10% of Catskill Tools, prepare journal entries for Market Research Syndicate for the following events:

Should it be accepted or rejected : Use the PI decision rule to evaluate this project. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Compute depreciation expense on the machine for year ending : Compute depreciation expense on the machine for the year ending December 31, 2014, and the year ending December 31, 2015

What''s the change in the firms eps from this change : The change in the capital structure won't have any effect on the firm's operations, thus EBIT will remain at $1,400,000.

Trading securities consisting of common-preferred stocks : On September 1, 2X12, Yelter Oil purchased trading securities consisting of common and preferred stocks. The portfolio consists of:

Use the pi decision rule to evaluate this project : Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class.

Determine the three years rate of return for each fund : Obtain a random sample of at least 15 mutual funds from each investment category. Determine the three years rate of return for each fund

Prepare the journal entry for the wages and salaries paid : The state unemployment tax is 1.2%, the federal unemployment tax is .8%, Prepare the journal entry for the wages and salaries paid

User Account

All Pages