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Category > Accounting Posted 01 Jun 2017 My Price 5.00

You are CEO of a high-growth technology firm

You are CEO of a high-growth technology firm. You plan to raise $180 million to fund an expansion by issuing either new shares or new debt. With the expansion, you expect earnings next year of $24 million. The firm currently has 10 million shares outstanding, with a price of $90 per share. Assume perfect capital markets.

a. If you raise the $180 million by selling new shares, what will the forecast for next year’s earn- ings per share be?

b. If you raise the $180 million by issuing new debt with an interest rate of 5%, what will the forecast for next year’s earnings per share be?

c. What is the firm’s forward P/E ratio (that is, the share price divided by the expected earnings for the coming year) if it issues equity? What is the firm’s forward P/E ratio if it issues debt? How can you explain the difference

Answers

Alpha Geek
(8)
Status NEW Posted 01 Jun 2017 09:06 AM My Price 5.00

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file 1496309508-Answer.docx preview (134 words )
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