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Author Question: Cyborg Mechatronics is entirely equity financed with 400 shares outstanding and a market ... (Read 36 times)

mckennatimberlake

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on: Apr 25, 2021
Cyborg Mechatronics is entirely equity financed with 400 shares outstanding and a market capitalization of $18,750 (P=$46.875). Current financial data for Cyborg is provided in the table below for two states of nature, which correspond with two levels of sales. The standard deviation of EPS is $1.875. The CFO of Cyborg, John Conner, is considering a change in capital structure. In particular, he is thinking about borrowing $6,562.50. He will borrow the money by issuing perpetual bonds with a face value of $6,562.50 and a coupon rate of 6%. The borrowed money will be used to repurchase shares at $46.875 per share. Repurchased shares will be cancelled. Taxes are 0%. First, calculate the EPS in each state of nature if Cyborg borrows the money. Second, calculate the standard deviation of the EPS. What is the ratio of the standard deviation of EPS with the leveraged capital structure to the standard deviation under the current, all equity capital structure?

Cyborg Mechatronics​​
​BadGood
EBIT $750$2,250
Interest00
Pre-Tax Income7502,250
Taxes (0%)00
Net Income7502,250
# Shares400400
EPS$1.88 $5.63 

◦ 0.54
◦ 1.25
◦ 1.54
◦ 1.88
◦ 2.89
Corporate Finance Online ¦ Eakins, McNally ¦ 2nd Edition
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Marked as best answer by mckennatimberlake on Apr 25, 2021

Hdosisshsbshs

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Reply #1 on: Apr 25, 2021
Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.
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mckennatimberlake

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Reply 2 on: Apr 25, 2021
Excellent

Sarahjh

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Reply 3 on: Yesterday
Great answer, keep it coming :)

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