When EBIT is high, what happens to a more levered firms EPS?
When EBIT is high then EPS will be high for a more levered firm. This is because for a levered firm there is benefit of tax shield and with higher EBIT there will be higher net Income too. Moreover outstanding shares of high levered firm is less.
b-1. What is the EBIT/TA rate when the firm's have equal EPS? EBIT/TA rate b-2. What is the cost of debt? Cost of debt b-3. State the relationship between earnings per share and the level of EBIT. EPS is unaffected by financial leverage when the pre-tax return on assets (EBIT/TA) the cost of debt. c. If the cost of debt went up to 12 percent and all other factors remained equal, what would be the break-even level for EBIT? Break-even...
Gerrell Corp. is considering a new capital structure. The new Levered Plan would result in 12,000 shares of stock and $100,000 in debt. The interest rate on the debt is 6 percent. Compare this plans to the current all-equity plan assuming that EBIT will be $75,000. The all-equity plan has 15,000 shares of stock outstanding. Assuming that the corporate tax rate is 40 percent, what is the EPS for each of these plans? What is the breakeven EBIT? (Do not...
Equity value in a levered firm. Air Seattle has an annual EBIT of $1 comma 200 comma 000, and the WACC in the unlevered firm is 17 %. The current tax rate is 35%. Air Seattle will have the same EBIT forever. If the company sells debt for $ 2 comma 200 comma 000 with a cost of debt of 23%, what is the value of equity in the unlevered firm and in the levered firm? What is the value...
what happens to a firms liquidity when an acconts receivable is collected?
Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more levered. Both companies will remain in E business for one more year. The companies' economists agree that the probability of the continuation of the current expansion is 80 percent for the next year, and the probability of a recession is 20 percent. If the expansion continues, each firm will generate earnings E before interest and taxes (EBIT) of $2.9 million. If a recession occurs, each firm will...
Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more levered. Both companies will remain in business for one more year. The companies' economists agree that the probability of the continuation of the current expansion is 70 percent for the next year, and the probability of a recession is 30 percent. If the expansion continues, each firm will generate earnings before interest and taxes (EBIT) of 532 million. If a recession occurs, each firm will generate earnings...
When calculating Earning Per Share (EPS) ,do we consider EBIT or PAT or neither?
Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more levered. Both companies will remain in business for one more year. The companies' economists agree that the probability of the continuation of the current expansion is 70 percent for the next year and the probability of a recession is 30 percent. If the expansion continues, each firm will generate earnings before interest and taxes (EBIT) of $4.6 million. If a recession occurs, each firm will generate earnings...
Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more levered. Both companies will remain in business for one more year. The companies' economists agree that the probability of the continuation of the current expansion is 80 percent for the next year and the probability of a recession is 20 percent. If the expansion continues, each firm will generate earnings before interest and taxes (EBIT) of $4.7 million. If a recession occurs, each firm will generate earnings...
Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more levered. Both companies will remain in business for one more year. The companies' economists agree that the probability of the continuation of the current expansion is 80 percent for the next year and the probability of a recession is 20 percent. If the expansion continues, each firm will generate earnings before interest and taxes (EBIT) of $3.9 million. If a recession occurs, each firm will generate earnings...