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QUESTION: The EBIT-EPS approach to capital structure involves selecting the capital structure that maximizes earnings before...
QUESTION: The EBIT-EPS approach to capital structure involves selecting the capital structure that maximizes earnings before interest and taxes (EBIT) over the expected range of earnings per share (EPS). True or False with an explaintion. minimum worrds 200
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Expert Solution
The EBIT-EPS approach to capital structure is a business tool which is used to determine the best ratio between debt and equity which are mostly used to finance the business and comes for the use of operations and business assets.
EBIT ( Earning before interest and taxes) is refers to the company earning before paying interest on debt amd tax on income earned. No matters takes place or not any effect on EBIT if company have more debt and overloaded with debt or no loans at all. The EBIT remains the same.
EPS ( Earning per Share) refers to the profit of the company after paying interest and all types of taxes. EPS basically defines that profit per share.
For example -
An company wants to stable EPS, the company EBIT must also increase the debt interest expense. If EBIT increases the same, then the EPS remains stable assming no changes in taxes.
So,
The EBIT-EPS approach to capital structure involves selecting the capital structure that maximize earning before interest and taxes over the expected range of earnings per share.
jeff jeffy answered 2 years agoRelated Solutions
UESTION: The EBIT-EPS approach to capital structure involves selecting the capital structure that maximizes earnings before...
UESTION: The EBIT-EPS approach to capital structure involves
selecting the capital structure that maximizes earnings before
interest and taxes (EBIT) over the expected range of earnings per
share (EPS).
ANSWER OPTIONS: True False You need to specifically state IN THE
SUBJECT LINE if the answer is TRUE or FALSE.
EXAMPLES OF INADEQUATE RESPONSES: “I think the answer is False.”
OR “The correct answer is “C.”
Postings must be no less than 200 words in length to be
considered. Any posting...
What is Earnings Before Interest and Taxes-Earnings Per Share (EBIT-EPS) analysis? What is the indifference curve?...
What is Earnings Before Interest and Taxes-Earnings Per Share
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factored into the EBIT-EPS analysis? What are basic shortcomings of
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EBIT—EPS and capital structure Data-Check is considering two capital structures. The key information is shown in...
EBIT—EPS and capital structure Data-Check is considering two
capital structures. The key information is shown in the following
table. Assume a 21% tax rate.
Source of Capital
Structure A
Structure B
Long Term Debt
$94,000 at 15.3% coupon rate
$188,000 at 16.3% coupon rate
Common Stock
4,300 shares
2,150 shares
a. Calculate two EBIT-EPS coordinates for each of the
structures by selecting $50,000 & $60,000 EBIT values and
finding their associated EPS values.
b. Plot the two capital structures on...
EBIT—EPS and capital structure Data-Check is considering two capital structures. The key information is shown in...
EBIT—EPS and capital structure Data-Check is
considering two capital structures. The key information is shown in
the following table. Assume a 21% tax rate.
Source of capital Structure A
Structure B
Long-term debt $98,000 at 15.6% coupon rate
$196,000 at 16.6% coupon rate
Common stock 4,800 shares 2,400 shares
a. Calculate two EBIT-EPS coordinates for each of the
structures by selecting any two EBIT values and finding their
associated EPS values.
b. Plot the two capital...
Section 2: Capital Structure An unlevered company operates in perfect markets and has earnings before interest...
Section 2: Capital Structure
An unlevered company operates in perfect markets and has
earnings before interest and taxes (EBIT) of $3m. Assume that the
required return on assets for firms in this industry is 10%. The
firm issues $15m worth of debt with a required return of 6% and
uses the proceeds to repurchase outstanding stock. There are no
corporate or personal taxes.
a) What is the market value of the firm and required return of this
firm’s stock before...
Alpha Corporation has earnings before interest and tax (EBIT) per annum in perpetuity of $200,000. The...
Alpha Corporation has earnings before interest and tax (EBIT)
per annum in perpetuity of $200,000. The tax rate is 30%. The firm
is funded $50,000 of debt and $150,000 of equity. The cost of
equity is 18% and the cost of debt is 6%.
Given the information above, what is the appropriate discount rate
if earnings before interest and tax (EBIT) are used to calculate
the value of the firm?
A.
20.79%
B.
25.71%
C.
18%
D.
14.55%
E.
None...
Alpha Corporation has earnings before interest and tax (EBIT) per annum in perpetuity of $200,000. The...
Alpha Corporation has earnings before interest and tax (EBIT)
per annum in perpetuity of $200,000. The tax rate is 30%. The firm
is funded $50,000 of debt and $150,000 of equity. The cost of
equity is 18% and the cost of debt is 6%.
Given the information above, what is the appropriate discount rate
if earnings after interest and before tax (EAIBT)is used to
calculate the equity value of the firm?
A.
20.79%
B.
25.71%
C.
18%
D.
14.55%
E....
Alpha Corporation has earnings before interest and tax (EBIT) per annum in perpetuity of $200,000. The...
Alpha Corporation has earnings before interest and tax (EBIT)
per annum in perpetuity of $200,000. The tax rate is 30%. The firm
is funded $50,000 of debt and $150,000 of equity. The cost of
equity is 18% and the cost of debt is 6%.
Given the information above, what is the appropriate discount rate
if earnings before interest and after tax (EBIAT) are used to
calculate the value of the firm?
A.
20.79%
B.
25.71%
C.
18%
D.
14.55%
E....
A firms Earnings Before Interest and tanxes(EBIT) is $239,667. The company's taxe rate is 35%. Its...
A firms Earnings Before Interest and tanxes(EBIT) is $239,667.
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