Walkers firm is currently an all equity firm because thats the way they always d

ID: 2698244 • Letter: W

Question

Walkers firm is currently

an all equity firm because thats the way they

always done it. Under pressure from a new group of major

stockholders, Walker is considering acquiring some debt(leverage)

in an effort to boost earnings per share. The company currently has

600 shares, but he is thinking about borrowing $6,000 at 10% per

year and buying back 200 of those shares. Refer to the scenario

above, what level of EBIT would make this an attractive

strategy?

Show work please!

Please do not post other chegg answers or

urls. Also do not spam my questions, I am tired of losing points

due to spam!!! I will give 5 stars to whoever can answer this and

show work to back it up. Thanks!!

equity EPS= EBIT/600

leveraged EPS = (EBIT -6000 *10%)/400

EBIT/600 = (EBIT -6000 *10%)/400

hence EBIT = 1800

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