NoNuns Cos. has a 25 percent tax rate and has $302.40 million in assets, currently financed entirely with equity. Equity is worth $30 per share, 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 upon 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 Recession 0.20 Expected EPS $5,846,400 Average Boom 0.25 0.55 $11,995,200 million $18,950,400 million The firm is considering switching to a 25-percent-debt capital structure, and has determined that it would have to pay an 10 percent yield on perpetual debt in either event. What will be the level of expected EPS if GTB switches to the proposed capital structure? (Do not round Intermediate calculations and round your final answer to 2 decimal places.)
NoNuns Cos. has a 25 percent tax rate and has $302.40 million in assets, currently financed entirely with equity. Equity is worth $30 per share, 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 upon 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 Recession 0.20 Expected EPS $5,846,400 Average Boom 0.25 0.55 $11,995,200 million $18,950,400 million The firm is considering switching to a 25-percent-debt capital structure, and has determined that it would have to pay an 10 percent yield on perpetual debt in either event. What will be the level of expected EPS if GTB switches to the proposed capital structure? (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:NoNuns Cos. has a 25 percent tax rate and has $302.40 million in assets, currently
financed entirely with equity. Equity is worth $30 per share, 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 upon 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
Expected
Recession
0.20
EPS
$5,846,400
Average
0.55
Boom
0.25
The firm is considering switching to a 25-percent-debt capital structure, and has
determined that it would have to pay an 10 percent yield on perpetual debt in either
event. What will be the level of expected EPS if GTB switches to the proposed capital
structure? (Do not round Intermediate calculations and round your final answer to 2
decimal places.)
$11,995,200 million $18,950,400 million
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