HiLo,Inc.,doesn't face any taxes and has $100 million in assets,currently financed entirely with equity.Equity is worth $50 per share,and book value of equity is equal to market value of equity.Also,let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year,with the possible values of EBIT and their associated probabilities shown as follows:
The firm is considering switching to a 40 percent debt capital structure,and has determined that they would have to pay a 10 percent yield on perpetual debt.What will be the level of expected EPS if they switch to the proposed capital structure?
Definitions:
Hepatic Vein
Vein that drains the liver into the inferior vena cava.
Right Atrium
The right atrium is one of the four chambers of the heart, receiving deoxygenated blood from the body and passing it to the right ventricle.
Force Exerted
The physical pressure or effort applied to something.
Precapillary Sphincters
Circular muscles located at the entrance of capillaries that regulate blood flow into the capillary beds.
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