Assume that during 2007 baker mountain company had the

Reference no: EM13607557

Assume that during 2007, Baker Mountain company had the opportunity to acquire additional assets at a price of $500 million. The additional assets were expected to increase the company's operating income by $80 million annually (to $386,679,000) for the foreseeable future. They could be financed either by selling stock or issuing debt.

Prepare a pro forma (projected) income statement for each financing alternative. Start with operating income. Compute pro forma return on equity under each alternative. Discuss whether Baker Mountain should finance the acquisition with debt or stock. Assume that debt could be issued at a 7% interest rate.

Operating Income $ 306,709.00
Interest Expense $ (55,528.00)
Income Taxes (40%) $ (100,460.00)
Net Income $ 150,691.00

Earnings per share (144.6 million per share $ 1.04
Total assets $ 3,297,390.00
Short Term borrowing $ 1,612.00
Current Portion of long-term debt $ 247.00
Total current liabilities $ 635,320.00
Long-term debt $ 673,588.00
Deferred income taxes $ 150,460.00
Other long-term liabilities $ 51,178.00
Total stockholders' equity $ 1,689,209.00

Reference no: EM13607557

Questions Cloud

Electric utilities generally have very high common equity : electric utilities generally have very high common equity ratios because their revenues are more volatile than those of

The predetermined overhead allocation rate based on direct : the predetermined overhead allocation rate based on direct labor cost is the ratio of estimated overhead cost for the

Solve the heat diffusion equation to find tx and find the : heat is generated uniformly inside a 20-mm thick plane wall at a rate of 20000 wm3. the thermal conductivity of the

What is the electric field both magnitude and direction at : two 10 cm diameter charged disks face each other 19 cm apart. the left disk is charged to -50 nc and the right disk is

Assume that during 2007 baker mountain company had the : assume that during 2007 baker mountain company had the opportunity to acquire additional assets at a price of 500

A turntable 150m in diameter rotates at 800rpm two speakers : a turntable 1.50m in diameter rotates at 80.0rpm. two speakers each giving off sound of wavelength 30.7cm are attached

A hiker throws a stone from the upper edge of a vertical : a hiker throws a stone from the upper edge of a vertical cliff. the stones initial velocity is 25ms directed at 40

You live on a busy street but as a music lover you want to : you live on a busy street but as a music lover you want to reduce the traffic noise. if you install special

Two point charges lie along the y axis a charge of q1 -140 : two point charges lie along the y axis. a charge of q1 -14.0 microc is at y 5.0 m and a charge of q2 -2.0 microc is

User Account

All Pages