Question

                                      Current Cap. Structure &nbs

                                      Current Cap. Structure            Proposed Cap. Structure

            Assets                         $ 15 million                             $15 million

            Debt                            $0                                            $6 million

            Shares O/S                  600,000                                   ?

            Bond Int. Rate             n/a                                           10%

Price per share = $25

There are no taxes. EBIT is expected to be $2.5 million, but could be 40% higher if an economic expansion occurs, or 20% lower if a recession occurs. All values are market values.

What is EPS during an expansion for the proposed capital structure?

A. $4.17

B. $5.03

C. $5.83

D. $8.06

E. $9.72

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Answer #1

EPS during an expansion for the proposed capital structure

Answer: E. $9.72

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