A create a spreadsheet like the one in table 1210

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Unformatted text preview: l assets 0% $40,000,000 10 40,000,000 50 40,000,000 60 $ 40,000,000 40 $ No. of shares @ $25 40,000,000 30 $ Equity 40,000,000 20 $ Debt 40,000,000 b. Given the before-tax cost of debt at various levels of indebtedness, calculate the yearly interest expenses. % Debt 0% $ Total debt Before-tax cost of debt, kd $ $ Interest expense 0.0% 10 20 $ 7.5 8.0 30 9.0 40 11.0 50 12.5 60 15.5 c. Using EBIT of $8,000,000, a 40% tax rate, and the information developed in parts a and b, calculate the most likely earnings per share for the firm at various levels of indebtedness. Mark the level of indebtedness that maximizes EPS. % Debt 0% EBIT $8,000,000 10 8,000,000 20 8,000,000 30 8,000,000 40 8,000,000 50 8,000,000 60 8,000,000 Interest expense EBT Taxes Net income No. of shares EPS 554 PART 4 Long-Term Financial Decisions d. Using the EPS developed in part c, the estimates of required return, ks , and Equation 12.12, estimate the value per share at various levels of indebtedness. Mark the level of...
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This document was uploaded on 01/19/2014.

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