User Account

All Pages

Calculate earnings per share

Assignment Help Finance Basics
Reference no: EM131732854

Question: EBIT, Taxes, and Leverage. Repeat parts (a) and (b) in Problem assuming the company has a tax rate of 35 percent.

Problem: EBIT and Leverage. Kaelea, Inc., has no debt outstanding and a total market value of $194,775. Earnings before interest and taxes, EBIT, are projected to be $13,800 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 35 percent lower. The company is considering a $39,750 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,350 shares outstanding. Ignore taxes for this problem.

a. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in EPS when the economy expands or enters a recession.

b. Repeat part (a) assuming that the company goes through with recapitalization. What do you observe? Assume the stock price remains constant.

Reference no: EM131732854

Questions Cloud

Capital structure when calculating firm wacc : Specifically, what financing sources are excluded from the firm's capital structure when calculating firm WACC?
Provide constructive feedback to one other classmates post : Provide constructive feedback to at least one other classmate's post. Remember to include your marketing costs from the Marketing Plan you completed.
What are the economic and social consequences of prohibiting : What are the economic and social consequences of prohibiting the replacement of economic strikers?
Calculate the percentage changes in eps : Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in EPS.
Calculate earnings per share : EBIT and Leverage. Kaelea, Inc., has no debt outstanding and a total market value of $194,775. Earnings before interest and taxes, EBIT, are projected to be.
Firm weighted average cost of capital : Why do firms have different capital structures and how does capital structure influence a firm's weighted average cost of capital?
Explain the challenges of market research in global market : Explain the challenges of market research in global market.
Call option contracts at a quoted price : What is your total net profit or loss on this investment if the price of the underlying asset is $31.59 on the option expiration date?
Why do corporations employ investment bankers : Why do corporations employ investment bankers? What were some of the reasons for the decline in Facebook's stock price after its IPO?

Reviews

Write a Review

Finance Basics Questions & Answers

  What purpose does a collar beam serve in a roof

How does exterior-type plywood differ from interior-type plywood?

  Calculate the average collection period for each year

Calculate the average collection period for each year. c. Based on the receivables turnover for 2010, estimate the investment in receivables if net sales were $1,300,000 in 2011. d. How much of a change in the 2011 receivables occurred?

  Question regarding the firm financial strength

Review Ford Motor Company's Form 10-K for 2012. Explain the purpose of a company's 10-K and how it interprets the firm's financial strength. Write a description of three important items, including their significance to stakeholders, that you learn..

  Flagging my words against a french dictionary

Right in the middle of a Word 2007 document I am typing, Word started flagging my words against a French dictionary. Why? How can I turn this off? I've changed my default language to English (U.S.), but that applies to future documents. Thanks.

  Justification behind verizon dividend policy

From the e-Activity, infer the justification behind Google's dividend policy. Next, infer the justification behind Verizon's dividend policy. Provide a rationale for your response.

  Determine the balance in investment

Determine the balance in Gale's investment in subsidiary account at the end of 2009?

  Prepare a line graph showing the budgeted total revenues

Prepare a line graph showing the budgeted total revenues and total expenditures for FY 2016 and the projected total revenues and total expenditures for FY 2017 - FY 2021.

  Which security is riskier

Security B has an expected rate of return of 12 percent, a standard deviation of returns of 10 percent, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why?

  The way of electronic funds transfers and payment

Twenty years ago there was little in the way of electronic funds transfers and payments.  Discuss the impact of things like just-in-time inventory systems and point of sales systems on the need for cash.  For instance, look at the days payable, days ..

  Future fund value of an ordinary annuity

Determine its mean if the investment sales literature states that the future fund value of an ordinary annuity is determined using the simple interest formula method?

  Problem regarding the financial markets

Why did the u.s government help the bear sterns but the Lehman brothers go bankrupt, which caused a freeze in the financial markets, not only domestically but also internationally?

  The expected year-end free cash flow

A corporation has a weighted avg cost of capital of 10.25% and its value of operation is $57.50 million. Free cash flow is expected to grow at a constant rate at 6.00% per year.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd