Compute the earnings per share if return on assets increased

Assignment Help Financial Management

Reference no: EM131962528

Dickinson Company has $11,960,000 million in assets. Currently half of these assets are financed with long-term debt at 9.8 percent and half with common stock having a par value of $8. Ms. Smith, Vice President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 9.8 percent. The tax rate is 45 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable. Under Plan D, a $2,990,000 million long-term bond would be sold at an interest rate of 11.8 percent and 373,750 shares of stock would be purchased in the market at $8 per share and retired. Under Plan E, 373,750 shares of stock would be sold at $8 per share and the $2,990,000 in proceeds would be used to reduce long-term debt. a. How would each of these plans affect earnings per share? Consider the current plan and the two new plans. (Round your answers to 2 decimal places.) b-1. Compute the earnings per share if return on assets fell to 4.90 percent. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) b-2. Which plan would be most favorable if return on assets fell to 4.90 percent? Consider the current plan and the two new plans. Current Plan Plan E Plan D b-3. Compute the earnings per share if return on assets increased to 14.8 percent. (Round your answers to 2 decimal places.) b-4. Which plan would be most favorable if return on assets increased to 14.8 percent? Consider the current plan and the two new plans. Plan E Plan D Current Plan c-1. If the market price for common stock rose to $10 before the restructuring, compute the earnings per share. Continue to assume that $2,990,000 million in debt will be used to retire stock in Plan D and $2,990,000 million of new equity will be sold to retire debt in Plan E. Also assume that return on assets is 9.8 percent. (Round your answers to 2 decimal places.) c-2. If the market price for common stock rose to $10 before the restructuring, which plan would then be most attractive? Current Plan Plan D Plan E I only need C-1.

Reference no: EM131962528

Questions Cloud

Current yield and capital gains yield for each year of bond : Consider a bond with a coupon rate of 5%, a YTM of 4%, Trace bond value, current yield, and capital gains yield for each year of the bond.

Current yield and capital gains yield for each year of bond : Trace bond value, current yield, and capital gains yield for each year of the bond.

Variety of circumstances is important process : Adapting the methods you have learned to a variety of circumstances is an important process and an invaluable ability in the law office.

What was the real exchange rate for the peseta : Compute the PPP rate of the peseta over the period ($P S). What was the real exchange rate for the peseta in May 1981?

Compute the earnings per share if return on assets increased : Compute the earnings per share if return on assets increased to 14.8 percent. Which plan would be most favorable if return on assets fell to 4.90 percent?

Changes in the operating cycle : Changes in the Operating Cycle, Indicate the effect that the following will have on the operating cycle.

Should wacc be used to evaluate all of potential projects : Suppose a firm estimates its WACC to be 10%. Should the WACC be used to evaluate all of its potential projects,

The firm pays out all earnings as dividends : The firm pays out all earnings as dividends; hence, its stock is a zero growth stock. What is the total corporate value?

Settled business is planning to sell franchise nationwide : Fix 4 Less is a company for cellphone repair. After everything is settled business is planning to sell franchise nationwide.

User Account

All Pages