Question

39. Tigner corporation is planning a bond issue to finance a new project. Tigner plans to issue 2000 bonds with a face value of $1000 each and a coupon rate of 9%. The tax rate is 40%. Projected EPS after completion of the project is $5.46. What are the projected after-tax earnings after completion of the project if there are 200,000 shares outstanding:

1. $1,092,000

2. $1,100,000

3. $1,110,000

4. None of the above

40. Sturgis corporation is planning an equity issue to finance a new project. Sturgis plans to issue 100,000 shares of stock. Projected after tax earnings after completion of the project are $2,200,000 and shares outstanding will total 200,000. What is the projected EPS after completion of the project:

1. $9

2. $10

3. $11

4. None of the above

Answer 1

39. We have following formula-

Projected EPS after completion of the project = the projected after-tax earnings after completion of the project / Shares outstanding

Where,

Projected Earnings per share (EPS) after completion of the project = $ 5.46

The projected after-tax earnings after completion of the project=?

Shares outstanding = 200,000

Therefore,

$5.46 = the projected after-tax earnings after completion of the project /200,000

Or the projected after-tax earnings after completion of the project = $5.46 * 200,000

= $1,092,000

Therefore correct answer is option: $1,092,000

40. We have following formula-

Projected EPS after completion of the project = the projected after-tax earnings after completion of the project / Total Shares outstanding

Where,

Projected Earnings per share (EPS) after completion of the project =?

The projected after-tax earnings after completion of the project = $2,200,000

Total Shares outstanding = 200,000

Therefore,

Projected Earnings per share (EPS) after completion of the project = $2,200,000/200,000

= $11

Therefore correct answer is option: $11