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Jackson Corp - Value of Firm amounts in millions, except share price and EPS) Assets $3,000 EBIT $825 Share Price $30 Tax Rate 40% WACC 12% EPS = DPS $2.88 0% Shares Out 150.00 New cost of Equity 11% New cost of Bonds 10% New Capital Structure Debt 20% Equity 80%

Jackson Corp - Value of Firm amounts in millions, except share price and EPS) Assets $3,000 EBIT $825 Share Price $30 Tax Rate 40% WACC 12% EPS = DPS $2.88 0% Shares Out 150.00 New cost of Equity 11% New cost of Bonds 10% New Capital Structure Debt 20% Equity 80%

Essentials Of Investments
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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Capital structure decision

The company has no growth opportunities (g=0), so the company pays out all of its earnings as dividends (EPS=DPS). The consultant believes that if the company moves to a capital structure financed with 20% debt and 80% equity (based on market values) that the cost of equity will increase to 12% and that the after-tax cost of debt will be 5%. If the company makes this change, what would the resulting shares be worth?

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Jackson Corp - Value of Firm amounts in millions, except share price and EPS) Assets $3,000 EBIT $825 Share Price $30 Tax Rate 40% WACC 12% EPS = DPS $2.88 0% Shares Out 150.00 New cost of Equity 11% New cost of Bonds 10% New Capital Structure Debt 20% Equity 80%
Transcribed Image Text:Jackson Corp - Value of Firm amounts in millions, except share price and EPS) Assets $3,000 EBIT $825 Share Price $30 Tax Rate 40% WACC 12% EPS = DPS $2.88 0% Shares Out 150.00 New cost of Equity 11% New cost of Bonds 10% New Capital Structure Debt 20% Equity 80%
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