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linda_us, Master's Degree
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Lever Brothers has a debt ratio (debt to assets) of 40%. Management

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Lever Brothers has a debt ratio (debt to assets) of 40%. Management is wondering if its current capital structure is too conservative. Lever Brothers’ 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%?

1) 1.75
2) $2.00
3) $3.25
4) $4.50
Submitted: 4 years ago.
Category: Business and Finance Homework
Expert:  linda_us replied 4 years ago.
Answer is 1) 1.75


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