Homework Answers
EBIT = [Net Income / (1 - t)] + Interest
= [40 / (1 - 0.36)] + 15 = 62.5 + 15 = $77.5 million
Total Interest = Interest on old debt + Interest on new debt
= 15 + (0.07 * 40) = 15 + 2.8 = $17.8 million
EPS = [(EBIT - Total Interest) * (1 - t)] / No. if shares outstanding
= [(77.5 - 17.8) * (1 - 0.36)] / 18
= [59.7 * 0.64] / 18 = 38.208 / 18 = $2.12
So, 3rd option is correct.
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