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Frankie and Johnny’s Cafe is an all-equity firm with $650,000 in equity. Their daughter, Cricket, just got finished taking BA3500. Cricket suggested to her mom and dad that they change the capital structure by taking on some debt and buying back some of their own shares. Frankie and Johnny said that they would consider a loan of $400,000 if Cricket could show them that it was good for the company.
Cricket collected the following data:
Expected EBIT for next year 300,000 Price per share $40
Loan interest rate 10% # of shares outstanding 16,250
Tax rate 35%
What is earnings per share under the current structure? ____________
What would earnings per share be under the proposed structure? ____________
Should Frankie and Johnny do the restructuring? ______________
(Cost of debt) Gillian Stationery Corporation needs to raise $569,000 to improve its manufacturing plant. It has decided to issue a $1,00 par value bond with an annual coupon rate of 8.4% with interest paid semi-annually at 15-year maturity. Investor..
You own a stock portfolio invested 25 percent in Stock Q, 20 percent in Stock R, 35 percent in Stock S, and 20 percent in Stock T. The betas for these four stocks are .90, 1.23, 1.07, and 1.25, respectively. What is the portfolio beta?
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Daily settlement (marked the market) of the futures contract
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The Bet-r-Bilt Company has a 5-year bond outstanding with a 4.65 percent coupon. Interest payments are paid semi-annually. The face amount of the bond is $1,000. This bond is currently selling for 91 percent of its face value. What is the company's p..
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