NoNuns Cos. has a 20 percent tax rate and has $304.00 million in assets, currently financed entirely with equity. Equity is worth $32 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: State Probability of state Expected EBIT in state Recession 0.25 $5,130,000 Standard deviation In EPS Average 0.60 $10,640,000 The firm is considering switching to a 20-percent-debt capital structure, and has determined that it would have to pay an 10 percent yield on perpetual debt in either event. What will be the standard deviation in EPS If NoNuns switches to the proposed capital structure? (Do not round Intermediate calculations and round your final answer to 2 decimal places.) 0.4385 Boom 0.15 $17,195,000
NoNuns Cos. has a 20 percent tax rate and has $304.00 million in assets, currently financed entirely with equity. Equity is worth $32 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: State Probability of state Expected EBIT in state Recession 0.25 $5,130,000 Standard deviation In EPS Average 0.60 $10,640,000 The firm is considering switching to a 20-percent-debt capital structure, and has determined that it would have to pay an 10 percent yield on perpetual debt in either event. What will be the standard deviation in EPS If NoNuns switches to the proposed capital structure? (Do not round Intermediate calculations and round your final answer to 2 decimal places.) 0.4385 Boom 0.15 $17,195,000
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter17: Dynamic Capital Structures And Corporate Valuation
Section: Chapter Questions
Problem 3P
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