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papahomer papahomer
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7 years ago
Abbot Corp has a debt ratio (debt to assets) of 20%. Management is wondering if its current capital structure is too conservative. Abbot Corp's present EBIT is $4.5 million, and profits available to common shareholders are $2,910,600, with 600,000 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 $2,851,200, but only 480,000 common shares would be outstanding. What is the difference in EPS at a debt ratio of 40% versus 20%?
A) $4.85
B) $6.34
C) $1.09
D) $-0.10
Textbook 
Financial Management: Principles and Applications

Financial Management: Principles and Applications


Edition: 13th
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LutionalLutional
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