Reference no: EM132758603
Pipsqueak Co. has an exciting opportunity to buy out its main local competitor for $200,000. Doug Kindle, owner/operator of the business, calculates the combined EBIT of the merged companies would be $350,000. To pay for the acquisition, he is considering taking out a loan with his local bank, backed by his home mortgage, at an interest rate of 8%. In addition, $7500 of principal payments would be due each year. Fortunately, the company only has a small amount of existing debt, necessitating $10,000 in annual interest payments and $3000 in principal payments. However, the owner of Pipsquek's competitor has offered to instead take stock as a form of payment, rather than cash. In this case, Doug would issue shares of stock at $10 per share, and the competitor's current owner would become a part-owner in Pipsqueak Co. Doug's accountant tells him his current stock is worth about $15 per share. Doug owns all 80,000 existing shares. The company's tax rate is 21%.
Problem a) If the company raises the funding with equity, what will be its times-interested earned ratio? What will be its times-burden-covered ratio? What will be its earnings per share?
Problem b) If the company raises the funding with debt, what will be its times-interested earned ratio? What will be its times-burden-covered ratio? What will be its earnings per share?
Problem c) Which option would you suggest Doug pursue? Why?
|
Prepare table showing the yearly depreciation
: Jefferson Consulting, Prepare table showing the yearly depreciation, accumulated depreciation, and net book value of the equipment.
|
|
Determine the cost-effectiveness of companies
: Determine the cost-effectiveness of companies conducting need assessments.
|
|
What would nigels total payment to alice company be
: "The menu looks great, but tell me about the prices one more time," said Nigel, the manager of the Old Dublin Pub. Nigel was talking to Alice Petoskey.
|
|
How much is the debit to retained earnings on July
: The fair value is not materially different from the net realizable value. How much is the debit to retained earnings on July 1, 20X5
|
|
Find what will be times-burden-covered ratio
: If the company raises the funding with debt, what will be its times-interested earned ratio? What will be its times-burden-covered ratio?
|
|
Describe the principle of finance
: Among the many interesting topics related to businesses covered in this module, two of them probably need our further attention and discussion.
|
|
Project communications and interactions work
: How will project communications and interactions work between the project manager, the stakeholders and the project team?
|
|
Write synthesis about foreign exchange market
: Write synthesis about foreign exchange market. List the factors that affect the value of a currency in foreign exchange markets.
|
|
Calculate the employer payroll taxes
: Calculate the employer's payroll taxes, using the following rates: state unemployment, 5.4%; federal unemployment, 0.8%
|