FINANCIAL LEVERAGE Gentry Motors Inc., a producer of turbine generators, is in this situation: EBIT… 1 answer below »


FINANCIAL LEVERAGE Gentry Motors Inc., a inducement of turbine generators, is in this post: EBIT = $4 pet, tax scold = T = 35%, default uncollected = D = $2 pet, rd = 10%, rs = 15%, distributes of supply uncollected = N0 = 600,000, and size prize per distribute = $10. Because Gentry’s consequence market is steady and the assemblage expects no augmentation, all rights are paid out as dividends. The default consists of endless bonds.

a. What are Gentry’s rights per distribute (EPS) and its charge per distribute (P0)?

b. What is Gentry’s weighted mediocre consume of chief (WACC)?

c. Gentry can acception its default by $8 pet to a whole of $10 pet, using the new default to buy end and retreat some of its distributes at the floating charge. Its concern scold on default earn be 12% (it earn bear to allure and repay the old default), and its consume of equity earn flow from 15% to 17%. EBIT earn last steady. Should Gentry modify its chief make? Why or why not?

d. If Gentry did not bear to repay the $2 pet of old default, how would this desire the post? Assume that the new and the calm?} uncollected default are equally intrepid, delay rd = 12%, but that the coupon scold on the old default is 10%.

e. What is Gentry’s TIE coverage narration beneath the former post and beneath the stipulations in Part c of this inquiry?