", e, and book value of equity is equal to market value of in which state of the economy occurs this year, with the possible values of EBIT and their associated probabl State robability of state xpected EBIT in state Pessimistic 0.45 $5 million Optimistic 0.55 $ 19 million e firm is considering switching to a 40-percent-debt capital structure, and has determined that it would have to pay a 12 percer Id on perpetual debt in either event. What will be the level of expected EPS if the firm switches to the proposed capital structum te: Do not round intermediate calculations and round your final answer to 2 decimal places.
", e, and book value of equity is equal to market value of in which state of the economy occurs this year, with the possible values of EBIT and their associated probabl State robability of state xpected EBIT in state Pessimistic 0.45 $5 million Optimistic 0.55 $ 19 million e firm is considering switching to a 40-percent-debt capital structure, and has determined that it would have to pay a 12 percer Id on perpetual debt in either event. What will be the level of expected EPS if the firm switches to the proposed capital structum te: Do not round intermediate calculations and round your final answer to 2 decimal places.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Lo, Incorporated doesn't face any taxes and has $150 million in assets, currently financed entirely with equity. Equity is worth $7 per
hare, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend
bon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below:
State
Probability of state
Expected EBIT in state
Pessimistic
0.45
$5 million
Expected EPS
Optimistic
0.55
$ 19 million
The firm is considering switching to a 40-percent-debt capital structure, and has determined that it would have to pay a 12 percent
vield on perpetual debt in either event. What will be the level of expected EPS if the firm switches to the proposed capital structure?
Note: Do not round intermediate calculations and round your final answer to 2 decimal places.
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