Assume the Following Facts About a Company What Will Be the Company's New EPS If It Borrows

question 25

Multiple Choice

Assume the following facts about a company: $\begin{array}{llll}\text { Capital (000's) } && \text { EBIT (000's) } & \$ 1,000 \\\text { Debt } & - & \text { Lessinterest Expense }&-\\\text { Equity } & \underline{\$ 3,000} & \text { EBT } &\$1,000\\\text { Total Capital } &\$3,000& \text { Taxes@ 40\% }&400\\\text { Sthares@ } \$ 10=300&&\text { Earnings after } \mathrm{T} a x&\$600\end{array}$ What will be the company's new EPS if it borrows money at 10% interest and uses it to retire stock until capital is 40% debt? The stock can be purchased at its book value of $10 per share.

• A) $3.33
• B) $4.89
• C) $2.93
• D) None of the above

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