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Kaelea, Inc., has no debt outstanding and a total market value of $98,000. Earnings before interest and taxes, EBIT, are projected to be $9,300 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 23 percent higher. If there is a recession, then EBIT will be 32 percent lower. The company is considering a $29,800 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 4,900 shares outstanding. Assume the company has a tax rate of 30 percent. a. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) EPS Recession $ Normal $ Expansion $ b. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to the nearest whole number, e.g., 32.) %ΔEPS Recession % Expansion % Assume the company goes through with recapitalization. c. Calculate earnings per share, EPS, under each of the three economic scenarios after the recapitalization. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) EPS Recession $ Normal $ Expansion $ d. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) %ΔEPS Recession % Expansion %
What is the present value of $180,000 to be received after 30 years with a 17 percent discount rate? Use Appendix B as an approximate answer, but calculate your final answer using the formula and financial calculator methods
Assets valued at $313 were sold during the year. Depreciation was $30. What is the amount of net capital spending?
Sergeant Electric's share price at the beginning of the year was $11.57. At the end of the year its price was $14.67. If it had 9,300,000 shares outstanding what market cap could it report in its annual report for the year?
The Income Statements and Balance Sheet will be affected by all of the entries in some way. Why is that?
The managers of United Medtronics are evaluating the following four projects for the coming budget period. The firm's corporate cost of capital is 14 percent. Project Cost IRR. What is the firm's optimal capital budget? Return to the original assumpt..
You buy an 7-year $1,000 par value bond today that has a 5.40% yield and a 5.40% annual payment coupon. In 1 year promised yields have risen to 6.40%. Your 1-year holding-period return was ___.
Consider a stock currently trading at 25 that can go up or down by 15 percent per period. The risk-free rate is 10 percent. Use one-period binomial model. Determine the rate of return from a risk-free hedge if the call is trading at 3.50 when the hed..
How would you justify a capital purchase to your vice president as to why the purchase would be a good investment for the hospital. What are the operating costs you took into consideration, what facility considerations are involved regarding this new..
Using Internet resources find current rates on fed funds loans, T-bills, commercial paper and banker’s acceptances. Are the rates similar? Why do they differ? Calculate the effective annual rates for each type instrument. Keep the terms as similar as..
All the following provisions are usually included in an insured stock cross-purchase buy-sell agreement EXCEPT:
A profitable corporation is considering purchasing a pickup truck for $8,000. Find the before tax rate of return.
Your firm, General Hospital is a not-for-profit, acute care facility which has the following cost structure for its inpatient services. Your job is to determine based on your extensive knowledge of Cost behavior and profit analysis theory and concept..
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