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Author Question: Consider two firms that are identical in every way except that one has $15,000 of debt and 500 ... (Read 104 times)

jwb375

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Consider two firms that are identical in every way except that one has $15,000 of debt and 500 shares of stock outstanding, while the other is all-equity and has 650 shares of stock outstanding. Assume that the debt is a perpetuity with annual coupons at the rate of 6%. What is each firms' earnings per share if EBIT is $7,500? Assume a tax rate of 40%. 

Leveraged FirmAll-Equity Firm
EBIT$7,500$7,500
EPS??

◦ EPSL = 7.92; EPSE = 7.92
◦ EPSL = 6.92; EPSE = 7.92
◦ EPSL = 6.92; EPSE = 6.92
◦ EPSL = 7.92; EPSE = 6.92
◦ EPSL = 8.92; EPSE = 6.92


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Marked as best answer by jwb375 on Apr 25, 2021

ngr69

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jwb375

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Reply 2 on: Apr 25, 2021
YES! Correct, THANKS for helping me on my review


LegendaryAnswers

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Reply 3 on: Yesterday
Gracias!

 

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