Multiple Choice
Lever Brothers has a debt ratio (debt to assets) of 20%.Management is wondering if its current capital structure is too conservative.Lever Brothers's present EBIT is $3 million,and profits available to common shareholders are $1,680,000,with 457,143 shares of common stock outstanding.If the firm were to instead have a debt ratio of 40%,additional interest expense would cause profits available to stockholders to decline to $1,560,000,but only 342,857 common shares would be outstanding.What is the difference in EPS at a debt ratio of 40% versus 20%?
A) $2.12
B) $1.95
C) $1.16
D) $0.88
Correct Answer:
Verified
Correct Answer:
Verified
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