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What will be next year earnings per share

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Q1. Lauterbach corporation uses no debt it's beta is 1.10 and its tax rate is 40% however the CFO is considering moving to capital structure with 30% debt and 70% equity. if the risk-free rate is 5.0% in the market risk premium at 6.0% by how much would the capital structure shift change the firms cost of equity?

A. 2.26%

B. 1.70%

C. 1.98%

D. 1.13%

E. 1.41%

Q2. Spencer supply stock is currently saving for $30 a share the firm is expected to earn $8.40 per share this year and to pay your own dividends of $1.50. Investors require 10% return and if Spencer reinvest earnings and projects with an average returns equal to the stocks expected rate of return than what will be next year's earnings per share?

A. 8.72

B. 8.82

C. 8.51

D. 8.61

E. 8.40

Reference no: EM133041596

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