Question
Assume an unlevered company chooses to alter its capital structure by adding debt and using the...
Assume an unlevered company chooses to alter its capital structure by adding debt and using the debt proceeds to reduce shares outstanding as to leave total invested capital unchanged. Absent any other changes, the company's earnings before interest and taxes (EBIT) can be expected to:
Group of answer choices
increase.
decrease.
remain unchanged.
Assume an unlevered company chooses to alter its capital structure by adding debt and using the debt proceeds to reduce shares outstanding as to leave total invested capital unchanged. Absent any other changes, which of the following statements is correct?
Group of answer choices
Firm value wil decrease.
Net income will increase.
Taxes on earnings will decrease.
Homework Answers
Answer #1
- the company's EBIT will remain unchanged because interest is deducted after EBIT therefore is same in case of levered or unlevered firm
- firm net income will decrease because new interest income is to
be subtracted from the EBIT to give a lowered net income explain
this with the help of example below
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