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What are nile earnings per share

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Nile Motors, a producer of generators, is in this condition: EBIT = Br. 4 million; tax rate( T) = 35%; debt outstanding (D) = Br. 2 million; k d = 10%; k s = 15%; shares of stock outstanding = N 0 = 600,000; and book value per share = Br. 10. Since Nile's product market is stable and the company expects no growth, all earnings are paid out as dividends. The debt consists of perpetual bonds.

Required:

Question a. What are Nile's earnings per share (EPS) and its price per share (P 0 )?

Question b. What is Nile's weighted average cost of capital (WACC)?

Question c. Nile Motors can increase its debt by Br. 8 million, to a total of Br. 10 million, using the new debt to buy back and retire some of its shares at the current price. Its interest rate on debt will be 12% (it will have to call and refund the old debt), and its cost of equity will rise from 15% to 17%. EBIT will remain constant. Should Nile Motors change its capital structure?

Question d. If Nile Motors did not have to refund the Br. 2 million of old debt, how would this affect things? Assume that the new and the still outstanding debt are equally risky, with k d = 12%, but that the coupon rate on the old debt is 10%.

Reference no: EM132535117

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