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Black Berry Farms and Pea Pod Farms are each able to generate EBIT of $230,000. The separate capital structures for Black Berry and Pea Pod are presented below. Debt @ 10% Common stock Total Common shares EPS Black Berry Share price $1,200,000 1,100,000 $2,300,000 Debt @ 10% Common stock Share price Total 220,000 Common shares a. Compute EPS for both firms (assume a 40 percent tax rate). (Round the final answers to 2 decimal places.) Black Berry $ -0.24 Pea Pod 0.03 Black Berry $ 8.09 b. Assuming a P/E ratio of 33 for each firm, what would be each firm's share price? (Round your intermediate calculations and final answers to 2 decimal places.) Pea Pod $ Black Berry $ -6860.00x $800,000 1,500,000 $2,300,000 Pea Pod $ 1.09 c. Assume the P/E ratio would be 28 for the riskier company in terms of heavy debt utilization in the capital structure and 39 for the less risky firm. What would the share price now be for each firm? (Round your intermediate calculations and final answers to 2 decimal places.) 300,000 Pea Pod $ 1.29

Black Berry Farms and Pea Pod Farms are each able to generate EBIT of $230,000. The separate capital structures for Black Berry and Pea Pod are presented below. Debt @ 10% Common stock Total Common shares EPS Black Berry Share price $1,200,000 1,100,000 $2,300,000 Debt @ 10% Common stock Share price Total 220,000 Common shares a. Compute EPS for both firms (assume a 40 percent tax rate). (Round the final answers to 2 decimal places.) Black Berry $ -0.24 Pea Pod 0.03 Black Berry $ 8.09 b. Assuming a P/E ratio of 33 for each firm, what would be each firm's share price? (Round your intermediate calculations and final answers to 2 decimal places.) Pea Pod $ Black Berry $ -6860.00x $800,000 1,500,000 $2,300,000 Pea Pod $ 1.09 c. Assume the P/E ratio would be 28 for the riskier company in terms of heavy debt utilization in the capital structure and 39 for the less risky firm. What would the share price now be for each firm? (Round your intermediate calculations and final answers to 2 decimal places.) 300,000 Pea Pod $ 1.29

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Black Berry Farms and Pea Pod Farms are each able to generate EBIT of $230,000. The separate capital structures for Black Berry and Pea Pod are presented below. Debt @ 10% Common stock Total Common shares EPS Black Berry Share price $1,200,000 1,100,000 $2,300,000 Debt @ 10% Common stock Share price Total 220,000 Common shares a. Compute EPS for both firms (assume a 40 percent tax rate). (Round the final answers to 2 decimal places.) Black Berry Pea Pod 0.03 $ -0.24 x $ Black Berry $ 8.09 Pea Pod b. Assuming a P/E ratio of 33 for each firm, what would be each firm's share price? (Round your intermediate calculations and final answers to 2 decimal places.) Black Berry $ -6860.00 $800,000 1,500,000 $2,300,000 Pea Pod $ 1.09 x om your previous attempt. 300,000 c. Assume the P/E ratio would be 28 for the riskier company in terms of heavy debt utilization in the capital structure and 39 for the less risky firm. What would the share price now be for each firm? (Round your intermediate calculations and final answers to 2 decimal places.) Pea Pod $ 1.29 x d. This part of the question is not part of your Connect assignment.
Transcribed Image Text:Black Berry Farms and Pea Pod Farms are each able to generate EBIT of $230,000. The separate capital structures for Black Berry and Pea Pod are presented below. Debt @ 10% Common stock Total Common shares EPS Black Berry Share price $1,200,000 1,100,000 $2,300,000 Debt @ 10% Common stock Share price Total 220,000 Common shares a. Compute EPS for both firms (assume a 40 percent tax rate). (Round the final answers to 2 decimal places.) Black Berry Pea Pod 0.03 $ -0.24 x $ Black Berry $ 8.09 Pea Pod b. Assuming a P/E ratio of 33 for each firm, what would be each firm's share price? (Round your intermediate calculations and final answers to 2 decimal places.) Black Berry $ -6860.00 $800,000 1,500,000 $2,300,000 Pea Pod $ 1.09 x om your previous attempt. 300,000 c. Assume the P/E ratio would be 28 for the riskier company in terms of heavy debt utilization in the capital structure and 39 for the less risky firm. What would the share price now be for each firm? (Round your intermediate calculations and final answers to 2 decimal places.) Pea Pod $ 1.29 x d. This part of the question is not part of your Connect assignment.
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