What is the probability of negative earnings per share

Assignment Help Financial Management

Reference no: EM131336825

Rauchous Resources has traditionally been financed in a most conservative way. The CEO and founder, Rebecca, just does not believe it debt. However, after hearing a consultant discuss the concept of an optimal capital structure, she began to consider new financing options for the company Rauchous has an expected level of EBIT of $1.5 million, with an estimated standard deviation of $1 million.

a. Given the current capital structure with no debt, what is the probability that Rauchous will have negative earnings per share during the coming year?

b. Rauchous is considering a large share repurchase program to be funded with $10 million of 10 percent debentures. The current price per share of common stock is $50. If this repurchase is undertaken, what is the probability of negative earnings per share during the coming year?

Reference no: EM131336825

Questions Cloud

What is probability of having unfavorable financial leverage : If the expected level of EBIT is $100 million with a standard deviation of $20 million, what is the probability of having unfavorable financial leverage if the debt financing alternative is chosen?

Develop a decision tree using the most appropriate support : Calculate the value of p1 as described in Part b. Show calculations - Calculate the possible profit using the most appropriate support tool as described in Part c. Show calculations.

Explain the application of query design : IT 655- Explain the application of query design and how queries can be made more efficient, in general, according to industry best practices. Your discussion should specifically touch upon, at minimum, sub-queries, and sorting.

What is the icd-9-cm : What is the ICD-9-CM? Describe at least one of the outpatient coding guidelines listed in your text.

What is the probability of negative earnings per share : Given the current capital structure with no debt, what is the probability that Rauchous will have negative earnings per share during the coming year?

What is the chance of having unfavorable financial leverage : NVFC's expected level of EBIT from this division is $1.0 million with a standard deviation of $400,000. If the firm uses the second financing plan, what is the chance of having unfavorable financial leverage?

Standard deviation of the given probability distribution : Calculate the mean and standard deviation of the simulated values. How do they compare to the mean and standard deviation of the given probability distribution?

Explain how a linear breakeven chart is constructed : Explain how a linear breakeven chart is constructed when a firm's selling price, variable costs per unit, and fixed costs are known.

What is probability that jenkins will incur operating losses : What is the probability that Jenkins will incur operating losses?- What is the probability that Jenkins will operate above its breakeven point?

User Account

All Pages