What would be the effect on EPS , when equity is issued to repay debt?
What do you think?
Try some numbers.
I think no effect in eps
Why, exactly?
Issuance of equity will lead more ostanding shares but co doesnt have to pay debt interest as there will be no futher debt. So i think eps does not get affected.
What do you think bill?
What if the interest rate is less than the earnings yield (EPS / Share Price)? You should run a scenario analysis to see how it would work. It will be much easier than trying to conceptualize the math in your head.
It’s a matter of which changes by the greater percentage: earnings, or outstanding shares.
Personally, I’d look at some public company’s 10k and run some numbers. You’ll need market values for the debt and equity; the latter would be easy to find, but you may have to make an assumption about the former. Then issue enough stock to pay off all of the debt, remove all of the interest net of tax from the income statement, and see what happens to the EPS. It won’t be perfect, but it’ll likely be close.