ABC Corporation is thinking of converting its all-equity structure of capital to 40% debt,60% common equity. Currently, the company's 10,000 outstanding share are trading in themarket at Rs 49 per share. Its EBIT is Rs 87,200 per year and is expected to remain sameforever. If the company chooses to convert the all-equity stocks to debt, the interest rate onnew debt would be 7%. The company is exempted to pay any tax due to its nature ofbusiness.a.Jack owns 200 shares of the company. What would be his total earnings underexisting capital structure assuming that firm pays all its income as dividends?b.Under the proposed new capital structure, what earnings Jack can expect? Assumethat he still holds all 200 shares. (Note that if the company chooses the new capitalstructure, it needs to borrow debt and repurchase some of its existing shares with that debtto make the proposed capital structure of 40% debt and 60% common equity).C.Assume that company decided to convert its existing capital structure to the newone, but Jack do prefer the existing all equity capital structure. Show how could he recreatethe old (all equity) capital structure by un-levering his shares.d.Focusing on part (c), can you explain why the firm's capital structure choice isirrelevant?wPrivacyPolicyHourly ExamSpring 2-I U ab11:15 AMO Type here to searchdx ENG5/3/2021

a) Calculation of Earning Per Share: = Total earningsOutstanding shares =87,20010000 = 8.72 per…

ABC Corporation is thinking of converting its all-equity structur 60% common equity. Currently, the company's 10,000 outstand market at Rs 49 per share. Its EBIT is Rs 87,200 per year and is e forever. If the company chooses to convert the all-equity stock new debt would be 7%. The company is exempted to pay any t business. a. Jack owns 200 shares of the company. What would be l existing capital structure assuming that firm pays all its income Under the proposed new capital structure, what earning that he still holds all 200 shares. (Note that if the company cho structure, it needs to borrow debt and repurchase some of its e to make the proposed capital structure of 40% debt and 60% c Assume that company decided to convert its existing ca one, but Jack do prefer the existing all equity capital structure. the old (all equity) capital structure by un-levering his shares. b. C. d. Focusing on part (c), can you explain why the firm's cap irrelevant?

ABC Corporation is thinking of converting its all-equity structur 60% common equity. Currently, the company's 10,000 outstand market at Rs 49 per share. Its EBIT is Rs 87,200 per year and is e forever. If the company chooses to convert the all-equity stock new debt would be 7%. The company is exempted to pay any t business. a. Jack owns 200 shares of the company. What would be l existing capital structure assuming that firm pays all its income Under the proposed new capital structure, what earning that he still holds all 200 shares. (Note that if the company cho structure, it needs to borrow debt and repurchase some of its e to make the proposed capital structure of 40% debt and 60% c Assume that company decided to convert its existing ca one, but Jack do prefer the existing all equity capital structure. the old (all equity) capital structure by un-levering his shares. b. C. d. Focusing on part (c), can you explain why the firm's cap irrelevant?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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