4. During 3 months of the year, current assets drop to $400,000. Its operating profit (EBIT)...

4. During 3 months of the year, current assets drop to $400,000. Its operating profit (EBIT) is expected to be $620,000. Its tax rate is 40 percent. Shares are valued at $10. Its capital structure is short-term financing at 3 percent and long-term financing of 50 percent equity, 50 percent debt at 6 percent. (Round the final answers to 2 decimal places.)

a. Calculate expected EPS if the firm is perfectly hedged. EPS $

b. Calculate expected EPS if Phu is a more aggressive with its capital structure and finances all current assets and 20 percent of its capital assets with short-term loans. EPS $

c. Recalculate a and b if short-term rates go to 8 percent while long-term rates remain the same. EPS Perfectly Hedged $ Capital structure $

Expert Solution

ekkarill92 answered 9 months ago

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