Question

Faulkner’s Fine Fries Inc (FFF) is thinking about reducing its debt burden. Given the following capital structure information and an expected EBIT of $50 Million (plus or minus 10%) next year, should FFF change their capital structure?

FAULKNER'S FINE FRIES INC. (FFF)

CURRENT PROPOSED
Total Assets $750 Million $750 Million
Debt $450 Million $300 Million
Equity $300 Million $450 Million
Common Stock Price $30 $30
Number of shares 10,000,000 15,000,000
Interest rate 12.0% 12.0%

Answer 1

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