For explanatory convenience the coefficient of

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Unformatted text preview: this chapter as a proxy for beta, which measures the relevant nondiversifiable risk. CHAPTER 12 TABLE 12.12 Calculation of EPS for Selected Debt Ratios ($000) for Cooke Company Probability of EBIT Debt Ratio Leverage and Capital Structure .25 .50 .25 0% EBIT (Table 12.9) $ 0.00 Less: Interest (Table 12.11) $200.00 0.00 0.00 0.00 $ 0.00 Net profits before taxes Less: Taxes (T $100.00 $100.00 $200.00 0.40) 0.00 40.00 80.00 Net profits after taxes $ 0.00 $ 60.00 $120.00 EPS (25.0 shares, Table 12.10) $ 0.00 $ 2.40 $ 4.80 Expected EPSa $ 2.40 Standard deviation of EPSa Coefficient of variation of Debt Ratio $ 1.70 EPSa 0.71 30% EBIT (Table 12.9) $ 0.00 Less: Interest (Table 12.11) $100.00 15.00 15.00 15.00 $ 85.00 $185.00 34.00 74.00 Net profits before taxes ($15.00) Less: Taxes (T ( 6.00)b 0.40) $200.00 Net profits after taxes ($ 9.00) $ 51.00 $111.00 EPS (17.50 shares, Table 12.10) ($ 0.51) $ 2.91 $ 6.34 Expected EPSa $ 2.91 Standard deviation of EPSa $ 2.42 Coefficient of variation of EPSa...
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