Effect pf recapitalization
Not what you're looking for?
Pepsi Co. currently is 100% equity financed. The company is considering changing its capital structure. More specifically, Pepsis' CFO is considering a recapitalization plan in which the firm would issue long-term debt with a yield of 9% and use the proceeds to repurchase common stock. The recapitalization would not change the company's total assets nor would it affect the company's basic earning power, which is currently 15%. The CFO estimates that the recapitalization will reduce the company's WACC and increase its stock price. Which of the following is also likely to occur if the company goes ahead with the planned recapitalization?
a) The company's net income will increase
b) The company's earnings per share will decrease
c) The company's ROA will increase.
D) The company's ROE will decrease
Purchase this Solution
Solution Summary
The answer contains effect of recapitalisation on earnings per share
Solution Preview
The earnings per share will decrease:(ignoring tax)
Example
All equity # of shares 10,000
Debt =$0
EBIT ...
Purchase this Solution
Free BrainMass Quizzes
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.
Introduction to Finance
This quiz test introductory finance topics.
Organizational Leadership Quiz
This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.