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

The allied group is considering two investments the first

The Allied Group is considering two investments. The first investment involves a packaging machine, which can be used to package garments for shipping orders to customers. The second possible investment would be a moldin ...

1 what are some development strategies that many developers

1. What are some development strategies that many developers follow? Why do they follow such strategies? 2. What contingencies are commonly found in permanent or take-out loan commitments? Why are they used? What happens ...

Find two variables that you think should be either

Find two variables that you think should be either positively or negatively correlated. Measure these two variables in a sample of participants (for instance, your classmates). Calculate the Pearson correlation coefficie ...

Question 1find the simple interest on a 400 investment made

Question 1 Find the simple interest on a $400 investment made for 5 years at an interest rate of 7%/year. What is the accumulated amount? A. The simple interest is $140, the accumulated amount is $540. B. The simple inte ...

Phillips rock and mud is trying to determine the maximum

Phillips Rock and Mud is trying to determine the maximum amount of cash dividends it can pay this year. Assume its balance sheet is as follows: Assets Cash $ 386,000 Accounts receivable 836,000 Fixed assets   1,048,000   ...

The performance of a journal bearing around a rotating

The performance of a journal bearing around a rotating shaft is a function of the following variables: Q, the rate of flow lubricating oil to the bearing in volume per unit time; D, the bearing diameter; N, the shaft spe ...

One bond has 9 years until maturity and a coupon of 42 the

One bond has 9 years until maturity and a coupon of 4.2%. The coupon is paid semiannually. If the YTM is 6%, what is the value of this bond? There is another bond with 15 year to maturity with a coupon rate of 6%. This c ...

Assignemnt investment and pension trust funds1 describe

Assignemnt: Investment and Pension Trust Funds 1. Describe GASB requirements for accounting for Investment Trust Funds, (a) a discussion of when the use of investment trust funds is appropriate. (b) the investments to be ...

List three ways to control preload directly what are the

List three ways to control preload directly ? What are the advantages of a bonded ultrasonic transducer? What is sometimes cited as a disadvantage? Can torque be used to tighten a 6 in. diameter bolt? If not, why not? Na ...

1 compare and contrast manufacturing and geographic

1. Compare and contrast manufacturing and geographic postponement. 2. Define and illustrate cash-to-cash conversion, dwell time minimization, and cash spin. How do supply chain strategy and structure impact each? 3. Disc ...

  • 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

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

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen