The finance manager of the GZA Ltd is considering a recapitalization plan that would convert GZA from its current all-equity capital structure to one including substantial financial leverage.
-GZA now has 10,000,000 ordinary shares outstanding, which are selling for $15 each, and the company’s EBIT is expected to be $12,000,000 per year for the foreseeable future.
-The recapitalization proposal is to issue $60,000,000 worth of long-term, perpetual debt at an annual interest rate of 3.0% and use the proceeds to repurchase 4,000,000 ordinary shares worth $60,000,000.
Assume perfect capital markets with no market frictions such as corporate or personal income taxes.
Calculate the earnings per share and expected
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