Eisner Amusement Parks reported the following data in its most recent annual report:
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Sales
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$42.5 million
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Net Income
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$3.8 million
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Dividends
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$1.1 million
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Assets
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$ 50.0 million
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Eisner is financed 100 percent with equity. What is the company's sustainable growth rate?
Suppose that Eisner issued bonds to the public and used the proceeds to repurchase half of its outstanding shares. This new capital structure would create additional interest expenses of $2 million.
Assuming that the company faces a 35 percent tax rate, what impact would this restructuring have on its sustainable growth rate?