12 by substituting the expected level of eps and the

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Unformatted text preview: uting the expected level of EPS and the associated required return, ks, into Equation 11.12, we can estimate the per-share value of the firm, P0. TABLE 11.10 Capital structure debt ratio 0% 10 20 30 40 50 60 Calculation of Share Value Estimates Associated with Alternative Capital Structures for JSG Company Expected EPS (1) Estimated coefficient of variation of EPS (2) Estimated required return, ks (3) Estimated share value [(1) ÷ (3)] (4) $2.40 2.55 2.72 2.91 3.12 3.18 3.03 0.71 0.74 0.78 0.83 0.91 1.07 1.40 .115 .117 .121 .125 .140 .165 .190 $20.87 21.79 22.48 23.28 22.29 19.27 15.95 450 PART 4 Long-Term Financial Decisions EXAMPLE We can now estimate the value of JSG Company’s stock under each of the alternative capital structures. Substituting the expected EPS (column 1 of Table 11.10) and the required returns, ks (column 3 of Table 11.10), into Equation 11.12 for each of the capital structures, we obtain the share values given in column 4 of Table 11.10. Plotting the resulting s...
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This document was uploaded on 03/30/2014.

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