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47. 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
standard deviation in EPS if they switch to the proposed capital structure?
48. Your company has a 38% 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
standard deviation in EPS if they switch to the proposed capital structure?
49. 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
break-even level of EBIT?
50. 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
break-even level of EBIT?
51. Your company faces a 30 percent tax rate 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 level
of expected EPS if they switch to the proposed capital structure?
52. Your company faces a 34 percent tax rate 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 level
of expected EPS if they switch to the proposed capital structure?
53. Your company faces a 34 percent tax rate 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 level
of expected EPS if they switch to the proposed capital structure?
54. Your company faces a 25 percent tax rate 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
standard deviation in EPS if they switch to the proposed capital structure?
55. Your company faces a 30 percent tax rate 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
standard deviation in EPS if they switch to the proposed capital structure?
56. Your company faces a 34 percent tax rate 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
standard deviation in EPS if they switch to the proposed capital structure?
57. Suppose that Lil John Industries' equity is currently selling for $64 per share and that
there are 1 million shares outstanding. If the firm also has 20 thousand bonds outstanding, which
are selling at 108 percent of par ($1,000), what are the firm's current capital structure weights?
58. Suppose that Papa Bell Inc.'s equity is currently selling for $30 per share, with 4 million
shares outstanding. If the firm also has 70 thousand bonds outstanding, which are selling at 95
percent of par ($1,000), what are the firm's current capital structure weights?
59. Suppose that Papa Bell Inc.'s equity is currently selling for $95 per share, with 4 million
shares outstanding. If the firm also has 80 thousand bonds outstanding, which are selling at 91.5
percent of par ($1,000), what are the firm's current capital structure weights?
60. Daddi Mac, Inc., doesn't face any taxes and has $250 million in assets, currently financed
entirely with equity. Equity is worth $13 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. What will be the level of expected
EPS if they switch to the proposed capital structure?
61. Daddi Mac, Inc., doesn't face any taxes and has $250 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 10 percent yield on perpetual debt. What will be the level of expected
EPS if they switch to the proposed capital structure?
