Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. southwest sands currently has 19,400 shares of sto

Southwest Sands currently has 19,400 shares of stock outstanding. It is considering issuing $89,000 of debt...

Free

70.2K

Verified Solution

Question

Finance

Southwest Sands currently has 19,400 shares of stockoutstanding. It is considering issuing $89,000 of debt at aninterest rate of 6.2 percent. The break-even level of EBIT betweenthese two capital structure options is $61,000. How many shares ofstock will be repurchased if the company undergoes therecapitalization? Ignore taxes.

Multiple Choice

  • 1,754.90 shares

  • 1,504.20 shares

  • 1,667.16 shares

  • 1,901.15 shares

  • 1,378.85 shares

Answer & Explanation Solved by verified expert
4.4 Ratings (604 Votes)

break-even level of EBIT is the EBIT at which EPS for both the capital structure options is same

Unlevered Levered
a EBIT                61,000                61,000
b Less: Interest (89000*6.2%)                         -                     5,518
c EBT (a-b)                61,000                55,482
d Less: Tax                         -                            -  
e Earnings After Tax (c-d)                61,000                55,482
f Shares outstanding                19,400 N
g EPS (e/f)                     3.14                     3.14

55842/N = 61000/19400

= 3.14432989691

N = 55482/3.14432989691

=  17645.10

Shares bought back = 19400-17645.10

= 1,754.90 shares
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

Southwest Sands currently has 19,400 shares of stockoutstanding. It is considering issuing $89,000 of debt at aninterest rate of 6.2 percent. The break-even level of EBIT betweenthese two capital structure options is $61,000. How many shares ofstock will be repurchased if the company undergoes therecapitalization? Ignore taxes.Multiple Choice1,754.90 shares1,504.20 shares1,667.16 shares1,901.15 shares1,378.85 shares

Other questions asked by students

Q

Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced...

Finance
Q

An electron part of a plate that integrates an array of parallel plates loaded and with...

Physics
Q

Compare extrusion process with rolling process and compare extrusion process with die casting process.

Mechanical Engineering
Q

If there is only one type of charge in the universe then Electric field Area...

Physics
Q

Consider the functions f(x) = |x| and g(x) = 0.1 |x|.(a) Sketch the graph of...

Basic Math
Q

Hospital Noise Levels For a sample of 5 operating rooms taken in a hospital study,...

Basic Math
Q

Find a function that models the simple harmonic motion having the given properties Assume that...

Calculus
Q

Simplify 2 22 Click on Yellow bar in Answer Box to use Math Quill for...

Algebra
Q

Consider the following system of inequalities y 2x y 0 52 4 a Enter a...

Algebra
Q

Please show all work and complete steps Manson Corporation acquired 80 percent of...

Accounting
Q

Discuss the use of the fair value option originally described in SFAS No. 159 now...

Accounting
Q

kindly give me answer iam waiting for 24 horus no one is giving me answer....

Finance