Question

# ABC Corp. is currently all equity, and they have EBIT of \$250,297. They currently have 9,812...

ABC Corp. is currently all equity, and they have EBIT of \$250,297. They currently have 9,812 shares outstanding, with a share price of 276. What will their EPS be if they move to a 50% equity capital structure? Their cost of debt is 0.06.

EBIT of ABC corp = \$250,297

Market Value of equity of ABC corp = Share price*No of shares outstanding

= \$276*9812

Market Value of equity of ABC corp = \$2708,112

- ABC Corp moves to 50% equity capital structure which means that they will repurchase there 50% of Current Market Value of equity from Debt, such that Debt is 50% and Equity is 50%

Amount of debt raised = Market Value of Equity*50%

= \$2708,112*50%

Amount of debt raised = \$1354,056

Cost of Debt = 0.06

Interest Expenses on Debt = \$1354,056*0.06

Interest Expenses on Debt = \$81,243.36

Assuming there is no Tax as Tax rate is not given,

NEt income after Interest expenses = EBIT - Interest expenses

= \$250,297 - \$81,243.36

Net income = \$169,053.64

No of shares outstaning after shares repurchase = 9812*50%

= 4906 shares

EPS = NEt income/No of shares outstaning

= \$169,053.64/4906

EPS = \$34.46 per share

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