rving Corp. IS currently all equity is considering a $555000 debt issue maintain a debt equity ratio of 0.40 in the capital structure following M&M Proposition I. The interest rate on debt is 10%. There are currently 75000 shares outstanding. The Earnings before interest and taxes is expected to remain constant at 90000OS. The debt proceeds are used to repurchase the shares a. Compute the current EPS and EPS after change
rving Corp. IS currently all equity is considering a $555000 debt issue maintain a debt equity ratio of 0.40 in the capital structure following M&M Proposition I. The interest rate on debt is 10%. There are currently 75000 shares outstanding. The Earnings before interest and taxes is expected to remain constant at 90000OS. The debt proceeds are used to repurchase the shares a. Compute the current EPS and EPS after change
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:Irving Corp. is currently all equity is considering a
$555000 debt issue maintain a debt equity ratio
of 0.40 in the capital structure following M&M
Proposition I. The interest rate on debt is 10%.
There are currently 75000 shares outstanding.
The Earnings before interest and taxes is
expected to remain constant at 900000S. The
debt proceeds are used to repurchase the shares.
a. Compute the current EPS and EPS after change
in the capital structure if the firm has a constant
pay out rate of 75%, Show the steps of calculating
share price and number of share repurchases
under proposed capital structure. (:
you own 4440 worth of stock in this company
what is your total cash flow if the pay-out rate
under the current capital structure? (^
Compute the number of shares repurchased from
you and the total cash flow you will receive under
the new capital structure?.
:) b. If
"s) C.
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