Reference no: EM133110516
Question - You have been provided with the following information regarding Acme Co.:
-Earning of $5,000,000 before preferred dividend payments.
-1 million preferred shares outstanding with a par value of $25 and a 5% dividend rate
-Common shares: 4,000,000 authorized; 3,000,000 issued and outstanding.
-Shareholders' Equity: $50,000,000
Required -
1. Calculate the company's basic earnings-per-share (EPS). Show all calculations.
2. Calculate the company's return-on-equity. Show all calculations.
3. If the company were to change its capital structure by swapping debt for shares (issuing shares to repurchase bond), what effect would this have on the following ratios: i) return-on-equity; ii) interest coverage; iii) price-to-earnings? Explain your answer. No calculations required.
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