Current Proposed Current Capital Structure: No Debt Proposed Capital Structure: Debt = $4 million Assets
Posted: Thu Apr 28, 2022 1:32 pm
Current
Proposed
Current Capital Structure: No Debt
Proposed Capital Structure: Debt = $4 million
Assets
$8,000,000
$8,000,000
Recession
Expected
Expansion
Recession
Expected
Expansion
Debt
$0
$4,000,000
EBIT
$500,000
$900,000
$1,300,000
EBIT
$500,000
$900,000
$1,300,000
Equity
$8,000,000
$4,000,000
Debt/Equity Ratio
0
1
Share
Price
$20
$20
Shares
Outstanding
400,000
200,000
Interest rate
N/A
10%
a)
Calculate the Interest, Net income, ROE, and EPS for the current
and proposed capital structure.
b)
Calculate the Breakeven EBIT.
Proposed
Current Capital Structure: No Debt
Proposed Capital Structure: Debt = $4 million
Assets
$8,000,000
$8,000,000
Recession
Expected
Expansion
Recession
Expected
Expansion
Debt
$0
$4,000,000
EBIT
$500,000
$900,000
$1,300,000
EBIT
$500,000
$900,000
$1,300,000
Equity
$8,000,000
$4,000,000
Debt/Equity Ratio
0
1
Share
Price
$20
$20
Shares
Outstanding
400,000
200,000
Interest rate
N/A
10%
a)
Calculate the Interest, Net income, ROE, and EPS for the current
and proposed capital structure.
b)
Calculate the Breakeven EBIT.