Question

Oak Farms is an unlevered firm with 1550 shares outstanding and an EBIT of 625. Corporate earnings are taxed at a rate of 36%.

Calculate EPS for Oak Farms. $ Note: Your answer should be in dollars and cents. For example, $0.99.

Suppose that Oak Farms makes a decision to partition (split) its assets into debt and equity. The firm issues $1250 of debt at a cost of 8.65%, and uses these funds to reduce the amount of equity on its books. The partition does not change the EBIT or the tax rate, but does reduce the number of shares outstanding to 800.

Compute Oak Farms EPS after the partition. $ Note: Your answer should be in dollars and cents.

Answer 1