09 May SUPPOSE EBIT IS $100 000 WHAT IS EPS UNDER EACH FINANCING MIX?
Financing MixCompany A is equity financed with 10000 shares of equity outstanding selling for $100 a share. It is restructuring. Low debt plan is to issue debt of $200 000 with proceeds to buy the stock. The high debt lan would exchange $400 000 of debt for equity. The debt will pay an interest rate of 10%. Company A pays no taxes.a What is the debt to equity ratio after each restructuring?b. If EBIT is either $90 000 or $130 00 what is the earning per share for each financing mix for both possible value of EBIT?c) Suppose EBIT is $100 000 what is EPS under each financing mix? d. Why is it the same in this case?
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