Question

Dickinson Company has $12,080,000 million in assets. Currently half of these assets are financed with long-term debt at 10.4 percent and half with common stock having a par value of $8. Ms. Smith, Vice President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 10.4 percent. The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable Under Plan D, a $3,020,000 million long-term bond would be sold at an interest rate of 12.4 percent and 377,500 shares of stock would be purchased in the market at $8 per share and retired Under Plan E, 377,500 shares of stock would be sold at $8 per share and the $3,020,000 in proceeds would be used to reduce long-term debt. a. How would each of these plans affect earnings per share? Consider the current plan and the two new plans. (Round your answers to 2 decimal places.) Current Plan Plan D Plan E Earnings per share b-1. Compute the earnings per share if return on assets fell to 5.20 percent. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Current Plan Plan D Plan E Earnings per share b-2. Which plan would be most favorable if return on assets fell to 5.20 percent? Consider the current plan and the two new plans. Plan E an Current Plan b-3. Compute the earnings per share if return on assets increased to 15.4 percent. (Round your answers to 2 decimal places.) Current Plan Plan E Earnings per share b-4. Which plan would be most favorable if return on assets increased to 15.4 percent? Consider the current plan and the two new plans. Current Plan Plan D Plan E c-1. If the market price for common stock rose to $10 before the restructuring, compute the earnings per share. Continue to assume that $3,020,000 million in debt will be used to retire stock in Plan D and $3,020,000 million of new equity will be sold to retire debt in Plan E. Also assume that return on assets is 10.4 percent. (Round your answers to 2 decimal places.) Current Plan Plan D Plan E Earnings per share

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

Home nert Page Layout Formulas Data Review View dd-Ins 111 .AA. E.-9- E wrap Text General Calibri ー E " ゴText copy ▼ チFormat Painter B l U. ㄧ˙ タ.Δ. -=- 還便困Merge & Center. $,%,,Ma conditional Format Cell Insert Delete Format conditional Format hal ins. Delete Format Eutosumh A Paste Formatting, as Table w styles. Styles 2 ClearFe Select Edting ▼ ㆆ ▼ Clipboard Font er BZ404 BR BS BT BU BX BY BZ CA CB CC CD CF 1256320 4041 EBIT-10.4% OF 12080000- 405 406 407 EBIT TOTAL ASSETS EXISTING PLAN 50 % EQUITY OF ASSETS 5096 DEBT OF ASSETS 12080000 EXISTING PLAND PLAN E NO OF SHARES 0400006040000/8- 6040000 12563201256320 1256320 INTEREST 10.40% 6281601002640 314080 628160 253680 942240 40% 251264 101472 376896 376896 152208 565344 755000 0 410TAX 411 NET INCOME 412 413 NO OF SHARES 414 41 416 NET INCOME/NO OF SHARES 417 418 419 NOTE: INTEREST PLAN D EQUITY LESS REPURCHASE 6040000 3020000 NO OF SHARES BALANCE EQUITY DEBT 55000453000 1057000 3020000 3020000/10 302000 6040000 EPS 0.50.34 0.53 ADD ADDITIONAL DEBT 3020000 9060000755000 -302000453000 PLAN E EQUITY 6040000 ADD ADDITIONAL ISSUE 3020000 NO OF SHARES 9060000 3020000/10 302000 EXISTING 6040000X 10.4% PLAN D 6040000 X 10.4% + 3020000 x 12.4% PLANE 3020000 X 10.4% capm-portfolio retirement futures EQUITY AFTER ISSUE DEBT 421 422 11 1 rị 6040000 3020000 LESS REDEEM DEBT 3020000 755000302000 1057000 margn PV FV ANNUITY ACC CVP KE BOND HPR REALISED YIELD NPL ROE sti costing EPS%, ECONOMY BEFORE AFTER BUYBACK She -Π 24-01-2019