i need the answer quickly Top management of Crane company is considering two alternative capital structures for 2027. The first (the "no debt" structure)would be to have $1,020,000 in assets and $1,020,000 in stockholders' equity, with 39,000 shares outstanding the entire year. This isthe structure the company had on December 31, 2026. Alternatively, on January 1, 2027, the company could issue $370,000 in debtat 6% interest (the "with debt" structure) and immediately use the proceeds to repurchase 19,500 shares of stock for $390,000. Theexpected amount of net income (ignoring taxes), prior to any interest costs, is $102,000 for 2027.Assume the company pays dividends on common stock equal to its net income each year. Also, assume the accrued interest on thedebt was paid at December 31, 2027, and the company has no other debt outstanding at year-end.Also, assume the company has $1,020,000 in assets at both the beginning and the end of 2027.(a)Compute the company's net income and earnings per share under both structures. (Ignore income taxes in your computations.)(Round earnings per share to 2 decimal places, e.g. 2.66.)eTextbook and MediaSave for Later2026$$$$$$2027Attempts: unlimited Submit Answer

Earning per share:The earning per share is popularly known in short as the EPS which means the…

Answered: (a) Compute the company's net income…

(a) Compute the company's net income and earnings per share under both structures. (Ignore income taxes in your computations.) (Round earnings per share to 2 decimal places, e.g. 2.66.) 2026 $ $ 2027

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter15: Harvesting The Business Venture Investment

Section: Chapter Questions

Problem 1eM

See similar textbooks

Similar questions

Mini Case The Castillo Products Company was started in 2017. The company manufactures components for personal decision assistant (PDA) products and for other handheld electronic products. A difficult operating year, 2018, was followed by a profitable 2019. The founders (Cindy and Rob Castillo) are interested in estimating their cost of financial capital since they are expecting to secure additional external financing to support planned growth. Short-term bank loans are available at an 8 percent interest rate. Cindy and Rob believe that the cost of obtaining long-term debt and equity capital will be somewhat higher. The real interest rate is estimated to be 2 percent and a long-run inflation premium is estimated at 3 percent. The interest rate on long-term government bonds is 7 percent. A default-risk premium on long-term debt is estimated at 6 percent; plus Castillo Products is expecting have to pay a liquidity premium of 3 percent due to the illiquidity associated with its long-term…
For the year ended 2020, ABC Company has $1,250,000 of debt with an annual interest rate of 4%, $2,000,000 of preferred stock with an annual preferred dividend rate of 2%, $3,500,000 of common stock (total book value), and 273,563 common shares outstanding. In 2021, the company plans to raise $500,000 external capital to fund a new project through a term loan with an interest rate of 7%. The new loan's sinking fund provision requires the loan to be fully amortized over the next 5 years, commencing in 2022. The company expects that the existing debt and preferred stock will not be retired until the year 2026; hence, they will remain in the same amount in 2021. If the project goes as planned, the company expects $1,200,000 of EBIT in 2021. The company's tax rate is 40%. What will the expected earnings per share under the new debt alternative be? Round your answer to two decimal places of dollar, but ignore dollar sign, e.g., x.xx. (Hint: Refer to the EBIT-EPS Analysis example…
While conducting a valuation study of Cross Corp for the annual update for the Trustees of the ESOP plan that owns a portion of the firm, you determine that the Terminal Value of the firm, at the end of a four-year Planning Period, is $120,070 (all $s in 000s). The firm’s capital structure is 30% debt and 70% equity, the cost of debt is 4%, and the cost of equity is 12%. The firm has a 24% tax rate. If the Present Value of Planning Period Cash Flows is $72,100, the Enterprise Value for Cross is: a. $72,100 b. $148,407 c. $156,194 d. $192,170 e. None of the above
A group of investors is planning to set up a new company. To help determine the new company’s financial requirements, the president has asked you to construct a pro forma balance sheet for 31 December 2019, the end of the first year of operations, and to estimate the company’s external financing requirements for 2019. Sales for 2019 are projected at $25 million, and the following are industry average ratios for similar companies: Sales to common equity (S/E) 5 times Current debt to equity (CL/E) 50% Total debt to equity (D/E) 80% Current ratio (CA/CL) 2.2 times Sales to inventory (S/Inv) 9 times Accounts receivable to sales ((A/R)/S) 10% Fixed assets to equity (FA/E) 70% Profit margin (NIAT/S) 5% Dividend payout ratio (DIV/NIAT) 30% a. Complete the pro forma balance sheet below, assuming that 2019 sales are $25 million and that the firm maintains industry average ratios b. What would be the amount of equity financing that must be supplied by the investors?
Please answer the question attached below
Athenian Venues Inc. just reported the following selected portion of its financial statements for the end of 2020. Your assistant has already calculated the 2020 end-of-year net operating working capital (NOWC) from the full set of financial statements (not shown here), which is 13 million. The total net operating capital for 2019 was 50 million. What was the 2020 net investment in operating capital? Athenian Venues Inc.: Selected Balance Sheet Information as of December 31 (Millions of Dollars)
F2
A company is planning to raise GHS 2000000 additional long-term funds to finance its additional capital budget of the current year. The debentures of the company to be sold on a 14% net yield basis to the company, and equity shares to be sold at GHS 50 per share net to the company, are the alternative being considered by the company. The company expects to pay dividend of GHS 5 per share at the end of the coming year. The expansion is expected to carry the company into new higher risk class. The required rate of return on equity from the point of view of the investment community is 16%. i.Determine the growth rate of the company, which the market is anticipating.ii.Management is anticipating 8% growth rate. On this basis, at what price should the equity share be sold by the company?iii.Assuming that management is anticipating growth rate of only 4% per year, would you still recommend equity financing?
Loyola Corporation has a target capital structure of 25% bond financing, 20% preferred stock financing, and 55% common equity financing. Loyola forecasts it will retain $1,000,000 of new earnings in the coming year. Where is the break in Loyola's cost of capital schedule?
Hancock Corp has the following operating results and capital structure. The firm is contemplating a capital restructuring to 60% debt. Its stock is currently selling for book value at $25 per share. The interest rate is 9%, and combined state and federal taxes are 42%. Show all of your calculation work and label all of your work so I can follow your calculation process. 1. Complete current income statement and balance sheet and income statement under proposed capital structure. 2. Calculate EPS under the current and proposed capital structures. 3. Calculate the DFL under both structures. Current ProposedINCOME STATEMENT Revenue $6,000,000 $6,000,000 Cost/Expense 4,500,000 4,500,000EBIT $1,500,000 1,500,000 Interest (9%) EBT Tax (42%) EAT (Net Income) BALANCE SHEET Debt $1,200,000…
Kirpalani Limited wants to expand its furniture line. The board of directors have agreed that the fastest way to raise these funds is to issue bonds. The company proceeds to issue $600,000, 10% bonds on March 1st, 2020. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2023. The bonds yield 12%. The company closes its books on December 31.1. Calculate the proceeds from the sale of the bond. Clearly show the amount of the premium or discount and state two reasons which support the premium or discount calculated. 2. Prepare a bond amortization schedule for the bond’s life3. Prepare all the journal entries for 2020 & 2021 (b) Gassy Stores sells $400,000 of 12% bonds on June 1, 2022. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2026. The market rate of similar investments is 10%. On December 1, 2024, Gassy Stores retired the bond for $400,000. The company closes its books on December 31.I. Calculate the…
Xavier Manufacturing Company has determined its optimal capital structure, which is composed of the following sources and target market value proportions: Target Market - Source of Capital Proportions Long-term debt 35% Preferred stock 5% Common stock equity 60% Debt: The firm plans to issue a 20-year, $1,000 par value, 6%(percent) bond. A flotation cost of 3% (percent) of the face value would be required. Preferred Stock: The firm has determined it can issue preferred stock at $70 per share par value. The stock will pay an $8.00 annual dividend. The cost of issuing and selling the preferred stock will be $3 per share. Common Stock: The firm’s common stock is currently selling for $40 per share. The dividend expected to be paid at the end of the coming year is $5.00. Its dividend payments have been growing at a constant rate for the last five years at a rate of 5%. In order to assure that the new stock issuance will sell,…