Question

Dickinson Company has $12,060,000 million in assets. Currently half of these assets are financed with long-term debt at 10.3 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 10.3 percent. The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable. Under Plan D, a $3,015,000 million long-term bond would be sold at an interest rate of 12.3 percent and 376,875 shares of stock would be purchased in the market at $8 per share and retired. Under Plan E, 376,875 shares of stock would be sold at $8 per share and the $3,015,000 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.) b-1. Compute the earnings per share if return on assets fell to 5.15 percent. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) b-2. Which plan would be most favorable if return on assets fell to 5.15 percent? Consider the current plan and the two new plans. Plan D Plan E Current Plan b-3. Compute the earnings per share if return on assets increased to 15.3 percent. (Round your answers to 2 decimal places.) b-4. Which plan would be most favorable if return on assets increased to 15.3 percent? Consider the current plan and the two new plans. Plan E Current Plan Plan D c-1. If the market price for common stock rose to $12 before the restructuring, compute the earnings per share. Continue to assume that $3,015,000 million in debt will be used to retire stock in Plan D and $3,015,000 million of new equity will be sold to retire debt in Plan E. Also assume that return on assets is 10.3 percent. (Round your answers to 2 decimal places.) c-2. If the market price for common stock rose to $12 before the restructuring, which plan would then be most attractive? Current Plan Plan E Plan D

Answer 1

SEE IMAGES. ANY DOUBTS, FEEL FREE TO ASK. HAPPY TO HELP YOU. THUMBS UP PLEASE. THANK YOU

File Home nert Page Layout Formulas Data Review View dd-Ins E AutoSum Calibri ー E " ゴWrap Text General Copy в 1 프· ー· 鱼, Δ. : rーー 遑狸函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Formsat Paste Format PainterB Formatting as Table Styles2 Clear Clipboard Font Styles Editing CA281 BRBS BT BX BY BZ CA CB CC CD CE CT 1242180 2811 EBIT= 10.3% OF 12060000 = 282 283 284 EBIT 285 INTEREST 10.30% 621090 991935 310545 286 EBT 287TAX 288 NET INCOME 289 290 NO OF SHARES 291 292 C-1 EPS 293 NET INCOME/NO OF SHARES 294 295 296 NOTE: INTEREST 297 EXISTING 6030000X 10.3% 298 PLAN D 6030000 X 10.3% + 3015000 x 12.3% 299 PLANE 3015000X 10.3% TOTAL ASSETS EXISTING PLAN 50 % EQUITY OF ASSETS 5096 DEBT OF ASSETS 1206(ИКИ) EXISTING PLAND PLAN E NO OF SHARES 6030000 (6030000/8 -753750) 6030000 12421801242180 1242180 621090 250245 931635 4096 248436 100098 372654 372654150147 558981 PLAN D EQUITY LESS REPURCHASE 6030000 3015000 NO OF SHARES BALANCE EQUITY DEBT 753750 5025001005000 3015000 3015000/12=251250 6030000 753750-251250 502500 0.49.300.56 ADD ADDITIONAL DEBT 3015000 9045000 6030000 ADD ADDITIONAL ISSUE 3015000 EQUITY NO OF SHARES 9045000 3015000/12=251250 EQUITY AFTER ISSUE DEBT 6030000 3015000 753750+251250 1005000 LESS REDEEM DEBT 3015000 ortfolo retre ent futures magn PV, F ANNUITY AC CV E BOND HpR REALİSED YIELD NP ROE std cost ng EPS%, ECONOMY, BEFORE AFTER BUYBACK Sh s