If the firm were to instead have a debt ratio of 40% additional interest expense would cause profits available to stockholders to decline to $1560000 but only 342857 common shares would be outstanding. What is the difference in EPS at a debt ratio of 40% versus 20%?

If the firm were to instead have a debt ratio of 40% additional interest expense would cause profits available to stockholders to decline to $1560000 but only 342857 common shares would be outstanding. What is the difference in EPS at a debt ratio of 40% versus 20%?

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 millionand profits available to common shareholders are $1680000 with 457143 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 $1560000 but only 342857 common shares would be outstanding. What is the difference in EPS at a debt ratio of 40% versus 20%? A. $0.88 B. $2.12 C. $1.16 D. $1.95


 

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