Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 13, Problem 1QP
EBIT and Leverage. Kaelea, Inc., has no debt outstanding and a total market value of $194,775. Earnings before interest and taxes, EBIT, are projected to be $13,800 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 35 percent lower. The company is considering a $39,750 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,350 shares outstanding. Ignore taxes for this problem.
a. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in EPS when the economy expands or enters a recession.
b. Repeat part (a) assuming that the company goes through with recapitalization. What do you observe? Assume the stock price remains constant.
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Chapter 13 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 13.1 - What is the relationship between the WACC and the...Ch. 13.1 - Prob. 13.1BCQCh. 13.2 - Prob. 13.2ACQCh. 13.2 - Prob. 13.2BCQCh. 13.2 - Prob. 13.2CCQCh. 13.3 - What does MM Proposition I state?Ch. 13.3 - Prob. 13.3BCQCh. 13.3 - Prob. 13.3CCQCh. 13.4 - Prob. 13.4ACQCh. 13.4 - Prob. 13.4BCQ
Ch. 13.5 - Prob. 13.5ACQCh. 13.5 - Prob. 13.5BCQCh. 13.6 - Can you describe the tradeoff that defines the...Ch. 13.6 - What are the important factors in making capital...Ch. 13.7 - Prob. 13.7ACQCh. 13.7 - Prob. 13.7BCQCh. 13.8 - What is the APR (in connection with bankruptcy...Ch. 13.8 - What is the difference between liquidation and...Ch. 13 - Prob. 13.3CCh. 13 - Prob. 13.4CCh. 13 - Prob. 13.5CCh. 13 - Section 13.6The static theory of capital structure...Ch. 13 - Prob. 13.7CCh. 13 - Business Risk versus Financial Risk. Explain what...Ch. 13 - Prob. 2CTCRCh. 13 - Prob. 3CTCRCh. 13 - Prob. 4CTCRCh. 13 - Prob. 5CTCRCh. 13 - Prob. 6CTCRCh. 13 - Prob. 7CTCRCh. 13 - Prob. 8CTCRCh. 13 - Prob. 9CTCRCh. 13 - Prob. 10CTCRCh. 13 - EBIT and Leverage. Kaelea, Inc., has no debt...Ch. 13 - EBIT, Taxes, and Leverage. Repeat parts (a) and...Ch. 13 - Prob. 3QPCh. 13 - Break-Even EBIT. Kyle Corporation is comparing two...Ch. 13 - Prob. 5QPCh. 13 - Prob. 6QPCh. 13 - Prob. 7QPCh. 13 - Prob. 8QPCh. 13 - Homemade Leverage. Lydie Enterprises is...Ch. 13 - Calculating WACC. Crosby Industries has a...Ch. 13 - Calculating WACC. Malkin Corp. has no debt but can...Ch. 13 - Prob. 12QPCh. 13 - Prob. 13QPCh. 13 - Prob. 14QPCh. 13 - MM. In the previous question, what is the...Ch. 13 - Prob. 16QPCh. 13 - Prob. 17QPCh. 13 - Prob. 18QPCh. 13 - Prob. 19QPCh. 13 - Business and Financial Risk. Assume a firms debt...Ch. 13 - Prob. 1CCCh. 13 - Prob. 2CCCh. 13 - Stephenson Real Estate Recapitalization Stephenson...Ch. 13 - Prob. 4CCCh. 13 - Prob. 5CC
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