Multiple Choice
Lever Brothers has a debt ratio (debt to assets) of 40%.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 $1,560,000,with 342,857 shares of common stock outstanding.If the firm were to instead have a debt ratio of 60%,additional interest expense would cause profits available to stockholders to decline to $1,440,000,but only 228,571 common shares would be outstanding.What is the difference in EPS at a debt ratio of 60% versus 40%?
A) $1.75
B) $2.00
C) $3.25
D) $4.50
Correct Answer:
Verified
Correct Answer:
Verified
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