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31. Your company doesn't face any taxes and has $500 million in assets, currently financed
entirely with equity. Equity is worth $40 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 as shown as follows:
The firm is considering switching to a 30 percent debt capital structure, and has determined that
they would have to pay a 9 percent yield on perpetual debt in either event. What will be the
standard deviation in EPS if they switch to the proposed capital structure?
32. Your company doesn't face any taxes and has $200 million in assets, currently financed
entirely with equity. Equity is worth $25 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 7 percent yield on perpetual debt in either event. What will be the
standard deviation in EPS if they switch to the proposed capital structure?
33. Your company doesn't face any taxes and has $750 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 30 percent debt capital structure, and has determined that
they would have to pay a 9 percent yield on perpetual debt in either event. What will be the
standard deviation in EPS if they switch to the proposed capital structure?
34. Your company doesn't face any taxes and has $800 million in assets, currently financed
entirely with equity. Equity is worth $60 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 20 percent debt capital structure, and has determined that
they would have to pay a 10 percent yield on perpetual debt in either event. What will be the
standard deviation in EPS if they switch to the proposed capital structure?
35. Your company doesn't face any taxes and has $250 million in assets, currently financed
entirely with equity. Equity is worth $8 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 20 percent debt capital structure, and has determined that
they would have to pay a 9 percent yield on perpetual debt in either event. What will be the level
of expected EPS if they switch to the proposed capital structure?
36. Your company doesn't face any taxes and has $300 million in assets, currently financed
entirely with equity. Equity is worth $15 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 30 percent debt capital structure, and has determined that
they would have to pay a 10 percent yield on perpetual debt in either event. What will be the level
of expected EPS if they switch to the proposed capital structure?
37. Your company doesn't face any taxes and has $750 million in assets, currently financed
entirely with equity. Equity is worth $25 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 25 percent debt capital structure, and has determined that
they would have to pay a 10 percent yield on perpetual debt in either event. What will be the level
of expected EPS if they switch to the proposed capital structure?
38. Your company doesn't face any taxes and has $200 million in assets, currently financed
entirely with equity. Equity is worth $10 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 as shown below:
The firm is considering switching to a 40 percent debt capital structure, and has determined that
they would have to pay an 8 percent yield on perpetual debt in either event. What will be the level
of expected EPS if they switch to the proposed capital structure?
39. Your company doesn't face any taxes and has $750 million in assets, currently financed
entirely with equity. Equity is worth $25 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 25 percent debt capital structure, and has determined that
they would have to pay a 10 percent yield on perpetual debt in either event. What will be the
break-even level of EBIT?
40. Your company doesn't face any taxes and has $300 million in assets, currently financed
entirely with equity. Equity is worth $10 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 30 percent debt capital structure, and has determined that
they would have to pay a 9 percent yield on perpetual debt in either event. What will be the
break-even EBIT?
41. Your company doesn't face any taxes and has $200 million in assets, currently financed
entirely with equity. Equity is worth $10 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 an 8 percent yield on perpetual debt in either event. What will be the
break-even EBIT?
42. Your company doesn't face any taxes and has $150 million in assets, currently financed
entirely with equity. Equity is worth $8 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 25 percent debt capital structure, and has determined that
they would have to pay a 12 percent yield on perpetual debt in either event. What will be the
break-even EBIT?
43. Your company has a 40 percent tax rate and has $750 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 30 percent debt capital structure, and has determined that
they would have to pay a 9 percent yield on perpetual debt in either event. What will be the level
of expected EPS if they switch to the proposed capital structure?
44. Your company has a 25 percent tax rate and has $600 million in assets, currently
financed entirely with equity. Equity is worth $20 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 30 percent debt capital structure, and has determined that
they would have to pay a 9 percent yield on perpetual debt in either event. What will be the level
of expected EPS if they switch to the proposed capital structure?
45. Your company has a 38 percent tax rate and has $800 million in assets, currently
financed entirely with equity. Equity is worth $60 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 20 percent debt capital structure, and has determined that
they would have to pay a 10 percent yield on perpetual debt in either event. What will be the level
of expected EPS if they switch to the proposed capital structure?
46. Your company has a 40 percent tax rate and has $750 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 follows:
The firm is considering switching to a 30 percent debt capital structure, and has determined that
they would have to pay a 9 percent yield on perpetual debt in either event. What will be the
standard deviation in EPS if they switch to the proposed capital structure?
