The two ebiteps coordinates developed for jsg

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Unformatted text preview: T for which EPS $0. The two EBIT–EPS coordinates developed for JSG Company’s current zero-leverage (debt ratio 0 percent) situation can be plotted on a set of EBIT–EPS axes, as shown in Figure 11.4. The figure shows the level of EPS expected for each level of EBIT. For levels of EBIT below the x-axis intercept, a loss (negative EPS) results. Each of the x-axis intercepts is a financial breakeven point, the level of EBIT necessary to just cover all fixed financial costs (EPS $0). Comparing Alternative Capital Structures We can compare alternative capital structures by graphing financing plans, as shown in Figure 11.4. The following example illustrates this procedure. EXAMPLE JSG Company, whose current zero-leverage capital structure was described in the preceding example, is contemplating shifting its capital structure to either of two leveraged positions. To maintain its $500,000 of total capital, JSG’s capital structure will be shifted to greater leverage by issuing debt and using the proceeds to retire an equiva...
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This document was uploaded on 03/30/2014.

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