Reference no: EM132758175
Question - BF Ltd plans to raise a net amount of $300 m to finance new equipment and working capital early in the next financial year. The company is considering to issue bonds with coupon rate of 14% per annum (paid annually), face value of $1,000. Currently, the company has 20 million shares outstanding. The tax rate is 30%
The balance sheet and income statement of BF prior to financing are as follows:
Balance sheet $m $m
Current assets 900 Accounts payable 300
Other current liabilities 350
Total current liabilities 650
Net fixed assets 450 Long-term debt (10%) 300
Common shares ($5) 100
Retained earnings 300
Total assets= 1,350 Total liabilities and equity = 1,350
Income statement $m
Sales 2,500
Cost of sales 2,000
EBIT 500
Interest 30
EBT 470
Tax (30%) 141
Net income 329
The next year's projected sales are $2,700 million and EBIT is 25% of sales.
Required - Assuming that the existing debt will remain outstanding, calculate the company's new earnings per share (EPS) after issuing the new bonds?