Lever
Brothers has a debt ratio (debt to assets) of 40%. Management is
wondering if its current capital structure is too conservative. Lever
Brothers’s present EBIT is $3 million, and profits available to common
shareholders are $1,560,000, with 342,857 shares of common stock
outstanding. If the firm were to instead have a debt ratio of 60%,
additional interest expense would cause profits available to
stockholders to decline to $1,440,000, but only 228,571 common shares
would be outstanding. What is the difference in EPS at a debt ratio of
60% versus 40%?
A.
$3.25
B.
$4.50
C.
$2.00
D.
$1.75
A.
$3.25
B.
$4.50
C.
$2.00
D.
$1.75
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