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Garson Corp

question 69

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Garson Corp.is looking at two possible capital structures.Currently,the firm is an all-equity firm with $1.2 million dollars in assets and 200,000 shares outstanding.The market value of each share of stock is $6.00.The CEO of Garson is thinking of leveraging the firm by selling $600,000 of debt financing and retiring 100,000 shares,leaving 100,000 outstanding.The cost of debt is 10% annually,and the current corporate tax rate for Garson is 30%.If the CEO believes that Garson will earn $100,000 per year before interest and taxes,should she leverage the firm? Explain.


Definitions:

American Federation Of Labor

A federation of trade unions founded in 1881, composed mostly of skilled, white, native-born workers; its long-term president was Samuel Gompers.

Socialist Party

A political organization advocating for the implementation of socialism, which emphasizes public or collective ownership and the equitable distribution of resources.

Industrial Workers Of The World

An international labor union founded in 1905, known for its radical approach to workers' rights and its goal of organizing all workers into one union.

Workers' Revolution

A movement aimed at overthrowing capitalist systems and establishing worker control over production and governance.

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