Solution-Impact on eps if new shares are issued to fund the

Impact on eps if new shares are issued to fund the centre

Assignment Help Financial Management

Reference no: EM13214436

Brown Ltd operates outdoor amusement centres in a number of country towns. The company has decided to build another centre that is expected to generate a permanent increase in EBIT of $100,000 pa. Current EBIT is $350,000. Brown currently has a capital structure that utilises bonds, ordinary equity and preference shares. The $200,000 of issued bonds pay 8% pa. Preference shares pay an annual fixed dividend of $150,000. Currently 250,000 ordinary shares have been issued and are trading at $2 per share. The company pays tax at 30%.

a) Brown needs to raise $500,000 to construct the new amusement centre. Assuming the company can issue new shares at the current market price, what is the impact on EPS if new shares are issued to fund the centre?

b) If new debt can be raised at a 10% interest rate, what is the impact on EPS of using debt rather than a new equity issue?

Brown Ltd depends on mainly on sunny weather to generate its expected EBIT. Using the information above together with the two following scenarios calculate the impact of the debt and equity financing alternatives if:

a) Weather is good which will increase attendances and increase EBIT to $600,000

b) Weather is poor which will decrease attendances and reduce EBIT to $320,000

c) Calculate the indifference point

Reference no: EM13214436

Questions Cloud

Determine whether the two inequalities above are consistent : US Output: 100 units Labor: 20 workers Wages: $3 Exports:$90 UK Output: 50 units Labor: 20 workers Wages:$2 Exports: $45 1.) Compare the relative productivity with the wage ratio 2.) Then calculate the ratio of the two exports. 3.) Determine whether ..

Explain molar analytical concentration of kcl : A solution was prepared by dissolving 5.76g of KCL*MgCl2*6H2O (277.85g/mol) in sufficient water to give 2.000L

Explain nmr spectra show one signal for isomer : There are three isomeric dichlorocyclopropanes. Their 1H NMR spectra show one signal for isomer 1, two signals for isomer 2, and three signals for isomer

Explain how is economic growth measured : How is economic growth is measured Which factor of economic growth is the most difficult to measure accurately Make recommendations on how the factor you identified can be measured more accurately.

Impact on eps if new shares are issued to fund the centre : Brown needs to raise $500,000 to construct the new amusement centre. Assuming the company can issue new shares at the current market price, what is the impact on EPS if new shares are issued to fund the centre?

What option position reproduces the debt profile : assuming a 10% risk-free rate and a USD 110.00 debt due in one year, use the bond-spread approach of the Merton model to fill in the spread (in basis points) associated with the indicated level of the SPY investment in the table below: SPY value (..

State higher temperature violates the law of thermodynamics : Show why the transfer of heat from an object with lower temperature to an object with higher temperature violates the second law of thermodynamics.

How much was the firms earnings before taxes ebt : How much was the firm's earnings before taxes EBT and what was Ramco's operating income, or EBIT (a.k.a. "Operating income"), in millions

State the complete neutralization reaction occurs : What are the spectator ions in the solution after the complete neutralization reaction occurs when mixing the strong base NaOH

User Account

All Pages

Impact on eps if new shares are issued to fund the centre

Reference no: EM13214436

Reference no: EM13214436

Questions Cloud

Reviews

Write a Review

Financial Management Questions & Answers

What is the need of international financial management

Leverage gives the illusion of higher returns

Wal-mart company financial analysis

Financial analysis for managers

Calculate the aud-jpy cross rate

How do market values affect the goal of financial managers

What will the adjusted eps and dps

Variable cost-fixed cost and mixed cost

What is the weighted average expected rate of return

Critics of the field of international finance charge

Prepare swag''s consolidated balance sheet

University of ballarat general guide

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT