1 med Dickinson Company has $12,180,000 million in assets. Currently half of these assets are financed with long-term debt at 10.9 percent and half with common stock having a par value of $8. Ms. Park, 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 10.9 percent. The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable. Under Plan D, a $3,045,000 million long-term bond would be sold at an interest rate of 12.9 percent and 380,625 shares of stock would be purchased in the market at $8 per share and retired. Under Plan E, 380,625 shares of stock would be sold at $8 per share and the $3,045,000 in proceeds would be used to reduce long- term debt. ok a. Compute earnings per share considering the current plan and the two new plans. Note: Round your answers to 2 decimal places. , t Current Plan Plan D Plan E Earnings per share t ces b-1. Compute the earnings per share if return on assets fell to 5.45 percent. Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Leave no cells blank be certain to enter O wherever required. Current Plan Plan D Plan E Earnings per share
1 med Dickinson Company has $12,180,000 million in assets. Currently half of these assets are financed with long-term debt at 10.9 percent and half with common stock having a par value of $8. Ms. Park, 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 10.9 percent. The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable. Under Plan D, a $3,045,000 million long-term bond would be sold at an interest rate of 12.9 percent and 380,625 shares of stock would be purchased in the market at $8 per share and retired. Under Plan E, 380,625 shares of stock would be sold at $8 per share and the $3,045,000 in proceeds would be used to reduce long- term debt. ok a. Compute earnings per share considering the current plan and the two new plans. Note: Round your answers to 2 decimal places. , t Current Plan Plan D Plan E Earnings per share t ces b-1. Compute the earnings per share if return on assets fell to 5.45 percent. Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Leave no cells blank be certain to enter O wherever required. Current Plan Plan D Plan E Earnings per share
Chapter3: Evaluation Of Financial Performance
Section: Chapter Questions
Problem 7P
Question
![1
med
Dickinson Company has $12,180,000 million in assets. Currently half of these assets are financed with long-term debt at 10.9 percent
and half with common stock having a par value of $8. Ms. Park, 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 10.9 percent.
The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable.
Under Plan D, a $3,045,000 million long-term bond would be sold at an interest rate of 12.9 percent and 380,625 shares of stock
would be purchased in the market at $8 per share and retired.
Under Plan E, 380,625 shares of stock would be sold at $8 per share and the $3,045,000 in proceeds would be used to reduce long-
term debt.
ok
a. Compute earnings per share considering the current plan and the two new plans.
Note: Round your answers to 2 decimal places.
,
t
Current Plan
Plan D
Plan E
Earnings per share
t
ces
b-1. Compute the earnings per share if return on assets fell to 5.45 percent.
Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Leave no cells blank be
certain to enter O wherever required.
Current Plan
Plan D
Plan E
Earnings per share](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1201f5c7-7e92-4f63-af45-4d5288811567%2Fbe0f5fa5-3bfb-4d7c-8dbc-ad66437650de%2Fqobvf6b_processed.jpeg&w=3840&q=75)
Transcribed Image Text:1
med
Dickinson Company has $12,180,000 million in assets. Currently half of these assets are financed with long-term debt at 10.9 percent
and half with common stock having a par value of $8. Ms. Park, 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 10.9 percent.
The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable.
Under Plan D, a $3,045,000 million long-term bond would be sold at an interest rate of 12.9 percent and 380,625 shares of stock
would be purchased in the market at $8 per share and retired.
Under Plan E, 380,625 shares of stock would be sold at $8 per share and the $3,045,000 in proceeds would be used to reduce long-
term debt.
ok
a. Compute earnings per share considering the current plan and the two new plans.
Note: Round your answers to 2 decimal places.
,
t
Current Plan
Plan D
Plan E
Earnings per share
t
ces
b-1. Compute the earnings per share if return on assets fell to 5.45 percent.
Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Leave no cells blank be
certain to enter O wherever required.
Current Plan
Plan D
Plan E
Earnings per share
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