Recapitalization A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to leveraged capital structure. Theproposal is for Focus to sell $53,000,000 worth of long-term debt at an interest rate of 7% and then repurchase as many shares as possible at a price of $25 per share.Focus currently has 4,700,000 shares outstanding and expects EBIT to be $22,000,000 per year in perpetuity. Ignoring taxes, calculate the following:a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization.b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures.c. The EBIT where EPS is the same for both capital structures.d. The EBIT where EPS is zero for both capital structures.a. The number of shares outstanding for Focus if it adopts the proposed recapitalization is shares. (Round to the nearest whole number.)(Round to the nearest dollar.)(Round to two decimal places.)The per-share price for Focus if it adopts the proposed recapitalization is $The debt-to-equity ratio for Focus if it adopts the proposed recapitalization isb. The earnings per share (EPS) for Focus under the current capital structure is $The earnings per share (EPS) for Focus under the proposed capital structure is $The return on equity (ROE) for Focus under the current capital structure is %.The return on equity (ROE) for Focus under the proposed capital structure isc. The EBIT where EPS is the same for both capital structures is $(Round to the nearest cent.)(Round to the nearest cent.)(Round to two decimal places.)%. (Round to two decimal places.)(Round to the nearest dollar.)d. The EBIT where EPS is zero for both capital structures is $(Round to the nearest dollar.)

Comment- Multiple Questions Asked. Earnings per share- Earnings per share (EPS) is a financial…

ng, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization. nd the return on equity (ROE) for Focus under the current and proposed capital structures. e for both capital structures. both capital structures. ng for Focus if it adopts the proposed recapitalization is shares. (Round to the nearest whole number.) dopts the proposed recapitalization is $ (Round to the nearest dollar.) (Round to two decimal places.) it adopts the proposed recapitalization is r Focus under the current capital structure is $ (Round to the nearest cent.) Focus under the proposed capital structure is $ (Round to the nearest cent.)

ng, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization. nd the return on equity (ROE) for Focus under the current and proposed capital structures. e for both capital structures. both capital structures. ng for Focus if it adopts the proposed recapitalization is shares. (Round to the nearest whole number.) dopts the proposed recapitalization is $ (Round to the nearest dollar.) (Round to two decimal places.) it adopts the proposed recapitalization is r Focus under the current capital structure is $ (Round to the nearest cent.) Focus under the proposed capital structure is $ (Round to the nearest cent.)

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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Question

Recapitalization A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to leveraged capital structure. The
proposal is for Focus to sell $53,000,000 worth of long-term debt at an interest rate of 7% and then repurchase as many shares as possible at a price of $25 per share.
Focus currently has 4,700,000 shares outstanding and expects EBIT to be $22,000,000 per year in perpetuity. Ignoring taxes, calculate the following:
a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization.
b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures.
c. The EBIT where EPS is the same for both capital structures.
d. The EBIT where EPS is zero for both capital structures.
a. The number of shares outstanding for Focus if it adopts the proposed recapitalization is shares. (Round to the nearest whole number.)
(Round to the nearest dollar.)
(Round to two decimal places.)
The per-share price for Focus if it adopts the proposed recapitalization is $
The debt-to-equity ratio for Focus if it adopts the proposed recapitalization is
b. The earnings per share (EPS) for Focus under the current capital structure is $
The earnings per share (EPS) for Focus under the proposed capital structure is $
The return on equity (ROE) for Focus under the current capital structure is %.
The return on equity (ROE) for Focus under the proposed capital structure is
c. The EBIT where EPS is the same for both capital structures is $
(Round to the nearest cent.)
(Round to the nearest cent.)
(Round to two decimal places.)
%. (Round to two decimal places.)
(Round to the nearest dollar.)
d. The EBIT where EPS is zero for both capital structures is $
(Round to the nearest dollar.)

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