Between 50000 and 95500 of ebit the capital structure

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 0 of EBIT, the capital structure associated with a debt ratio of 30% is preferred. And at a level of EBIT above $95,500, the 60% debt ratio capital structure provides the highest earnings per share.15 15 An algebraic technique can be used to find the indifference points between the capital structure alternatives. Due to its relative complexity, this technique is not presented. Instead, emphasis is given here to the visual estimation of these points from the graph. CHAPTER 11 EPS ($) FIGURE 11.5 10 9 8 7 6 5 4 3 2 1 0 –1 –2 –3 –4 Leverage and Capital Structure 447 EBIT–EPS Approach A comparison of selected capital structures for JSG Company Debt = 60% Ratio Debt = 30% Ratio Debt = 0% Ratio 60% 30% 0% 30% Financial Breakeven Points 60% 50 100 95.50 150 200 EBIT ($000) Capital structure debt ratio 0% 30 60 EBIT $100,000 $200,000 Earnings per share (EPS) $2.40 $4.80 2.91 3.03 6.34 9.03 Considering Risk in EBIT–EPS Analysis When interpreting EBIT–EPS analysis, it is important to consider the risk of each capital structure alternative. Graphically, the risk of...
View Full Document

This document was uploaded on 03/30/2014.

Ask a homework question - tutors are online