Purchase Solution

Determining EPS of borrowing money

Not what you're looking for?

Ask Custom Question

The following are facts about a company;

capital (000's) EBIT (000's) $,1000
debt ---- less interest expense ----
equity 3,000 EBT $1,000
total capital 3,000 Taxes @ 40% 400
shares @ $10= 300 earnings after tax $600

What will be the company's new EPS if it borrows money at 10% interest and uses it to retire stock until capital is 40% debt? The stock can be purchased at its book value of $10.00 per share.

Purchase this Solution
Solution Summary

Calculates the company's new EPS if it borrows money at 10% interest and uses it to retire stock until capital is 40% debt.

Solution Preview

The following are facts about a company;

capital (000's) EBIT (000's) $,1000
debt ---- less interest expense ----
equity ...

Purchase this Solution
Free BrainMass Quizzes
Operations Management

This quiz tests a student's knowledge about Operations Management

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

View More Free Quizzes
Related BrainMass Solutions

  • Method of financing to maximize EPS, stock issue or debt

    It can get the financing by selling 100,000 shares of stock at $30 (net) per share, or by borrowing the money at 9% interest. The expected EBIT after the new financing is $3 million, with a standard deviation of $2 million.

  • Earnings Per Share and Investment

    Companies can increase their EPS by increasing their net profits or by using leverage.  Leverage is the use of borrowed money to increase the return on equity (Harrison, et al. 2013). 

  • Leverage, risk

    The value of the firm's stock depends on EPS. A debt to assets ratio that maximizes expected EPS is the optimal capital structure. Answers a multiple choice question.

  • Worthington's payout ratio

    Worthington Corp has declared an annual dividend of .90 per share. For the year just ended, earnings were 6.50 per share. 1. What is Worthington's payout ratio? =Annual dividend/EPS =.90/6.5 =13.85% 2.

  • Debt as Attractive Source of Capital

    However, financial leverage can increase the shareholders' return on investment in the form of EPS due to tax deductibility from the borrowing. At what cost of debt will there be no difference in EPS at a given level of income?

  • Weaknesses and strengths of debt financing

    Intel has got strong track record; thus it can use this route to raise money. It has following features: Advantages of raising shares ? Permanent Capital: It need not be paid back ? Borrowing Base: It can be used to trade on equity ?

  • Earnings Before Interest

    /glossary.html "The EBIT-EPS indifference point is a calculation used in determining optimal capital structures. What that means is firms typically finance their operations with two primary means, equity and debt.

  • Effect on the corporations EPS and PE ratio

    I need help with determining the effect on the price per share of the stock and shareholder wealth? What will be the effect on the corporations EPS and PE ratio under the 2 different scenarios?

  • Debt and equity financing

    Intel has got strong track record; thus it can use this route to raise money.

  • Paid in capital and earned capital

    money at the infancy stage.

View More Related Solutions