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Category > Business & Finance Posted 09 Dec 2017 My Price 10.00

e earnings per share if return on assets increases


Dickinson Company has $11,960,000 million in assets. Currently half of these assets are financed with long-term debt at 9.8 percent and half with common stock having a par value of $8. Ms. Smith, Vice President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 9.8 percent. The tax rate is 45 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable.

 

Under Plan D, a $2,990,000 million long-term bond would be sold at an interest rate of 11.8 percent and 373,750 shares of stock would be purchased in the market at $8 per share and retired.

 

Under Plan E, 373,750 shares of stock would be sold at $8 per share and the $2,990,000 in proceeds would be used to reduce long-term debt.

 

b-3. Compute the earnings per share if return on assets increased to 14.8 percent.

c-1. If the market price for common stock rose to $10 before the restructuring, compute the earnings per share. Continue to assume that $2,990,000 million in debt will be used to retire stock in Plan D and $2,990,000 million of new equity will be sold to retire debt in Plan E. Also assume that return on assets is 9.8 percent.

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CourseLover
(12)
Status NEW Posted 09 Dec 2017 03:12 PM My Price 10.00

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