Question

ABC company were performing its Business capital structure fully finance by Equity and now it proposed of finance by debt and equity as per the following table. In addition, if the economy Recession, Expected or Expansion will expect EBIT of $500,000, 1,000,000 and 1,500,000 respectively. Current Proposed Assets $8,000,000 $8,000,000 Debt $0 $4,000,000 Equity $8,000,000 $4,000,000 Debt/Equity Ratio 0 1 Share Price $20 $20 Shares Outstanding 400,000 200,000 Interest rate Tax rate 10%
30% 10%
30% Based on the above data compute: A) the ROE in the three scenario’s for both options/ capital structure B) the EPS in the three scenario’s for both options/ capital structure C) what is your recommendation in relation to EPS and capital structure based on the given data D) draw the graph breakeven point of capital structure

Answer 1

Explanation

part 2 ≈≈≈≈≈≈ next answer