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raubac inc. has an earnings before interest and taxes

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raubac inc. has an earnings before interest and taxes -

Raubac inc. has an earnings before interest and taxes

Quetion: Raubac Inc. has an earnings before interest and taxes (EBIT) of $350,000. Raubac Inc.'s capital structure consists of a long-term debt of $950,000 (costing 4%) and 110,000 issued shares of common stock at a market price of $6 per share. To bring down Raubac's dependence on debt, the company is planning to reduce its debt by $200,000 by selling additional shares of common stock. Raubac's EBIT will not change with the change in capital structure and will remain in the 40 percent tax bracket. Which of the following is a result of the change in Raubac’s capital structure?

Raubac’s earnings per share (EPS) will increase by $0.57.

Raubac’s net income will increase by $4,800.

Raubac’s earnings before taxes (EBT) will reduce by $8,000.

Raubac’s earnings before taxes (EBT) will remain unchanged.

 

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