Earnings per share under bad,normal & good economy
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I am having trouble figuring out the effects of recapitalizing on the EPS.
All equity firm, on 11/2/09 stockholder decide they don't want to put up 10,000000 and not borrow any debt so they recapitalize 5,000,000 in bonds at 5% with 5000,000 shares at $10. How do you calculate the threes scenarios EPS now that they have DEBT?
bad economy normal economy good economy
Sales
costs
fixed
variable
EBIT
interest
NIBT
Tax
NIAT
EPS .86 1.40 1.94( these numbers will change now that they have debt)
---------------------------------------- (This is supposed to be a T account)
-
10,000,000 - 5,000,000 (debt)
-
-
- 5,000,000
-
-.
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Solution Summary
The solution contains the computation of earnings per share under bad,normal and good economy and also the computation to show that when there is increase in debt there is increase in earnings per share.
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