Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1) The Company plans to increase a net amount of =$270 million to finance new equipment and working capital in early 2002. 2 alternatives are being considered: Common stock may be sold to net $60 per share, or bonds yielding= 12 percent may be issued. The balance sheet and income statement of the Company prior to financing are as follows:

The Company: Balance Sheet as of December 31, 2001 (Millions of Dollars)
Present assets= $ 900.00 Accounts payable= $ 172.50 Net fixed assets450.00 Notes payable to bank255.00

Other current liabilitie s225.00
Total current liabilities$ 652.50
Long-term debt (10%)300.00
Common stock, $3 par60.00
Retained earnings337.50

Total assets$1,350.00Total liabilities and equity$1,350.00

The Company: Income Statement for Year Ended December 31, 2001(Millions of Dollars) sales$2,475.00
Operating costs= 2, 227.50 Earnings before interest and taxes (10%) $ 247.50 Interest on short-term debt= 15.00 Interest on long-term debt30.00 Earnings before taxes$ 202.50 Federal-plus-state taxes (40%)81.00 Net income= $ 121.50. The probability distribution for annual sales is as follows:

ANNUAL SALES PROBABILITY(MILLIONS OF DOLLARS)

0.30    $2,2500
.40    2,7000
.30    3,150

Supposing that EBIT is equal to 10% of sales, compute earnings per share under both debt financing and stock financing alternatives at each possible level of sales. Then compute expected earnings per share and EPS under both debt and stock financing alternatives.

Also, compute debt ratio and times-interest-earned (TIE) ratio at expected sales level under each alternative. Old debt will remain out-standing.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914932

Have any Question? 


Related Questions in Basic Finance

A thin film 10 mm thick coat of fresh paint has just been

A thin film, 1.0 mm thick, coat of fresh paint has just been sprayed over a 1.5 m by 1.5 m square steel body part, which approximates a flat surface. The paint contains benzene as the solvent. The paint surface exerts a ...

1 what does investment grade mean in the context of

1. What does "investment grade" mean in the context of corporate bond issues? How do these bonds differ from junk bonds, and why have the latter proven so popular with investors? 2. What is a Eurobond? Why did these bond ...

1 why is cindy fratelli unprepared to play an ihr role2 how

1. Why is Cindy Fratelli unprepared to play an IHR role? 2. How can she prepare herself? 3. What areas of IHR will Cindy need to learn?

Problem 1eric leased a new car the deal calls for 36

PROBLEM 1 Eric leased a new car. The deal calls for 36 beginning-of-month payments of $450, starting today. In addition, Eric has to include $1,000 with the final payment. The contract has an APR of 12% with monthly comp ...

A project has a projected sales quantity of 810 units a

A project has a projected sales quantity of 810 units, a sales price of $56 a unit, a variable cost per unit of $38, and fixed costs of $5,200. All estimates are within a plus or minus range of 3 percent. You would like ...

Sorenson inc has sales of 5119000 a gross profit margin of

Sorenson Inc. has sales of $5,119,000, a gross profit margin of 32.18 percent, and inventory of $1,017,000. What are the company's inventory turnover ratio and days' sales in inventory?

1 as chief financial officer you sell newly issued bonds on

1. As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is: a. borrowing indirectly. b. borrowing directly. c. lending directly. d. lending indirectly. 2. In which of the following ins ...

Why do higher interest rates lead to higher call option

Why do higher interest rates lead to higher call option prices but lower put option prices? Suppose a European put price exceeds the value predicted by put-call parity. How could an investor profit? Demonstrate that your ...

Below is a grammar for expressions involving operator and

Below is a grammar for expressions involving operator + and integer or oating-point operands. Floating-point numbers are distinguished by having a decimal point. a) Give an SDD to determine the type of each term T and ex ...

1 consider three equally spaced sources of strength m

1. Consider three equally spaced sources of strength m placed at (x, y) = ( a, 0),(0, 0), and (a, 0). Sketch the resulting streamline pattern. Are there any stagnation points? 2. Sketch the streamlines and potential line ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro