How would each of these plans affect the earnings per share

Assignment Help Finance Basics

Reference no: EM13294077

Dickinson Company has $12 million in assets. Currently half of these assets are financed with long-term debt at 10 percent. and half with common stock having a par value of 8$. 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 10 percent. the tax rate is 45 percent.

Under Plan D, a $3 million long-term bond would be sold at an interest rate of 12 percent and 375,000 shares of stock would be purchased in the market at $8 per share and retired. Under Plan E, 375,000 shares of stock would be sold at $8 per share and the $3,000,000 in proceeds would be used to reduce long-term debt.

a. How would each of these plans affect the earnings per share? Consider the current plan and the two new plans.

b. Which plan would be most favorable if return on assets fell to 5 percent? Increased to 15 percent? Consider the current plan and the two new plans.

c. If the market price for common stock rose to $12 before the restructuring, which plan would then be most attractive? Continue to assume that $3 million in debt will be used to retire stock in Plan D and $3 million of new equity will be sold to retire debt in Plan E. Also assume for calculations in part c that return on assets is 10 percent.

Reference no: EM13294077

Questions Cloud

Compute the ph of the buffer system with moles of h3po4 : Calculate the pH of the buffer system if 2.00 moles of H3PO4 and 1.00 mole of NaH2PO4 are present in 1.00L of a solution

Catalysts will affect the health care environment : What catalysts for change do you think exist within the health care environment? Discuss how these catalysts will affect the health care environment and the changes that need to occur.

Compute the speed of the box as it reaches the end of board : A box of books is initially at rest a distance D = 0.530 m from the end of a wooden board. Find the speed of the box as it reaches the end of the board

Use the afn equation to forecast the additional funds : Use the AFN equation to forecast the additional funds Carter will need for the coming year.

How would each of these plans affect the earnings per share : Which plan would be most favorable if return on assets fell to 5 percent? Increased to 15 percent? Consider the current plan and the two new plans.

Calculate the image position using the mirror equation : Draw a ray diagram depicting the following: and object is 20cm in front of a concave mirror whose radius of curvature is 25cm. Calculate the image position using the mirror equation

Explain the ksp values to calculate the molar solubility : Use the ksp values to calculate the molar solubility of each of the following compounds in pure water BaSO4(ksp=1.07x10^-10) PbCl2(ksp=1.17x10^-5) Ni(0H)2(ksp)5.48x10^-16

The lowest daily cost : Which number of treatment devices will give you the lowest daily cost?

Simply allow the parents to forgo the blood transfusion : A young couple rushes into an emergency room carrying their young child who was hit by a car while playing in the road. The child has lost quite a bit of blood and will not live without a blood transfusion. When the doctor in the ER suggests the bloo..

User Account

All Pages