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Suppose the same firm decided to use debt financing for 40% of its total capital structure, using debt financing of 6.5%. All other factors being equal, what would the new EPS of the firm be?

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A firm with No debt had the following:

EBIT - $ 2,750,000

Taxes - $ 0

Equity - $ 10,275,000

Shares outstanding - $ 950,000

A). What is the current EPS (Earnings Per Share) of this firm?

B). Suppose the same firm decided to use debt financing for 40% of its total capital structure, using debt financing of 6.5%. All other factors being equal, what would the new EPS of the firm be?

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Solution Preview

A). What is the current EPS (Earnings Per Share) of this firm?
*** I think the correct way is "Shares outstanding = 950,000", instead of $ 950,000. because it is a number, not a dollar

amount.
Current net ...

Solution Summary

Computations done for you to study them. The total capital structures are determined.

$2.19