Barns Brother's capital structure is 100% equity and 0% debt.
Currently there are 100,000 shares of common stock outstanding.
Barns has decided to change its capital structure by buying back shares of common stock in a recapitalization effort.
The firm’s Share price is $40.00 and its EPS is $3.00.
The company can borrow $1,000,000 at 9%.
EBIT is expected to be $500,000 and the tax rate is 40%.
How much will the capitalization increase or decrease shareholder wealth?
$0.28 per share
$0.00 per share
$0.36 per share
$0.17 per share