Question

Dickinson Company has $11,940,000 million in assets. Currently half of these assets are financed with long-term debt at 9.7 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 9.7 percent. The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable Under Plan D, a $2,985,000 million long-term bond would be sold at an interest rate of 11.7 percent and 373,125 shares of stock would be purchased in the market at $8 per share and retired. Under Plan E, 373,125 shares of stock would be sold at $8 per share and the $2,985,000 in proceeds would be used to reduce long. term debt.

Answer 1

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Home ert Page Layout Formulas Data Review V Add-Ins Σ AutoSum , 111-X^. ' 9- wrap Text General a copy ▼ .А. Paste Format Painter B 1 u. ㄧ˙ Merge & Center. $, % , 'ila Conditional Format Cell Insert Delete Format Sort &Find & Filter Select 袖 2 Clear , Formatting ▼ as Table-styles ▼ Styles ▼ ▼ ▼ Clipboard Font dting BW46 BRBS BT BU BW BX BY BZ CA CB CC CD CF EBIT= 9.7%% OF 11940000 1158180 TOTAL ASSETS EXISTING PLAN 50 % EQUITY OF ASSETS 5096 DEBT OF ASSETS 11940000 EXISTING PLAN D PLANE NO OF SHARES 34 EBIT 70000 (5970000/8 746250) 5970000 11581801158180 1158180 INTEREST 9.70% 579090 928335 289545 79090 229845 868635 40% 231636 91938 347454 47454137907 521181 EBT TAX PLAN D EQUITY LESS REPURCHASE 5970000 2985000 ORIGINAL 746250 LESS : NO OF SHARES 985000(2985000/12-248750) REVISED NO OF SHARES NO OF SHARES 46250497500 995000 BALANCE EQUITY DEBT 970000 0.52 ADD ADDITIONAL DEBT 2985000 42 C-1 EPS 43 NET INCOME/NO OF SHARES 0.47 0.28 8955000 746250-248750 497500 PLAN E EQUITY 970000 ADD ADDITIONAL ISSUE 2985000 ORIGINAL-746250 NO OF SHARES NOTE: INTEREST EXISTING 5970000X 9.7% PLAN D EQUITY AFTER ISSUE DEBT 8955000(2985000/12 248750) REVISED NO OF SHARES 48 (9.7%*5970000) +11.7%*2985000 5970000 2985000 LESS REDEEM DEBT 2985000 746250+248750 995000 141.-1 capm-portfolio retirement. futures margr PV FV ANNUITY ACC CV KE BOND HPR REALISED YIELD NPV ROE std costing EPS%, ECONOMY BEFORE AFTER BUYBACK She 10:38 10-04-2019