Equity-financed with 100,000 shares. An issue of $260,000 of debt with 12% interest. Repurchase 26,000 shares at $10 per share. $126,000 will be profits before interest. A. What is the ratio of price to be expected earnings before it borrows the $260,000? B. What will the ratio be after it borrows?

Equity-financed with 100,000 shares. An issue of $260,000 of debt with 12% interest. Repurchase 26,000 shares at $10 per share. $126,000 will be profits before interest. A. What is the ratio of price to be expected earnings before it borrows the $260,000? B. What will the ratio be after it borrows?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 13P: The Cost of Equity and Flotation Costs Messman Manufacturing will issue common stock to the public...

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Get correct answer accounting

Equity-financed with 100,000 shares. An issue of $260,000 of
debt with 12% interest. Repurchase 26,000 shares at $10 per
share. $126,000 will be profits before interest.
A. What is the ratio of price to be expected earnings before it
borrows the $260,000?
B. What will the ratio be after it borrows?

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