Ask Question, Ask an Expert


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:


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

Cost of debt the zephyr corporation is contemplating a new

(Cost of debt) The Zephyr Corporation is contemplating a new investment to be financed 33 percent from debt. The firm could sell new $1,000 par value bonds at a net price of $930. The coupon interest rate is 14 percent, ...

1 what is the scientific method and how does it guide

1. What is the scientific method, and how does it guide research? 2. Discuss the basic characteristics of scientific inquiry (empiricism, objectivity, and accumulation) and their value to science. 3. In what ways is scie ...

1 what is a pricing anomaly how might an investor use a

1. What is a pricing anomaly? How might an investor use a pricing anomaly to earn aboveaverage returns? 2. What is mean reversion? How might an investor use mean reversion to earn above-average returns? 3. What is excess ...

1 what is the difference between a stratum and a cluster2

1. What is the difference between a stratum and a cluster? 2. What is the drawback of obtaining random samples by telephone? 3. In what way would the use of sampling improve the accuracy of the United States census?

Enter the home page of the careers in business web site

Enter the home page of the Careers in Business Web site (http://www, and page through the finance positions listed and their corresponding salaries. What skill sets or job characteristics lead t ...

What is the expected relationship between dividend payout

What is the expected relationship between dividend payout levels and the growth rate and availability of positive-NPV projects, under the agency cost model of dividends? What about the expected relationship between divid ...

What is storage why is it risky what role does it play in

What is storage? Why is it risky? What role does it play in the economy? Why is delivery important if so few futures contracts end in delivery? What are the major functions of derivative markets in an economy? Why is spe ...

1 discuss how error accountability can be a major factor in

1. Discuss how error accountability can be a major factor in improving forecast performance. 2. Discuss how a minor change in demand at the retail level can significantly impact supply chain variation at distributors, ma ...

A 1000 bond is paying a coupon interest rate of 7 the

A $1,000 Bond is paying a coupon interest rate of 7%. The current Required Rate of Return in the market is 5%. If you were buying this Bond on the market today, would you expect to pay more than $1,000 for it (Premium) o ...

1 modify the wagner-within model for the case where the

1. Modify the Wagner-Within model for the case where the warehouse is capacitated. Does the ZIO property still hold? 2. What is the optimal order quantity in the newsboy model if the warehouse is capacitated? 3. Extend t ...

  • 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