Dickinson Company has $11,960,000 million in assets. Currently half of these assets are financed with long-term debt at 9.8 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 9.8 percent. The tax rate is 45 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable. Under Plan D, a $2,990,000 million long-term bond would be sold at an interest rate of 11.8 percent and 373,750 shares of stock would be purchased in the market at $8 per share and retired. Under Plan E, 373,750 shares of stock would be sold at $8 per share and the $2,990,000 in proceeds would be used to reduce long- term debt. a. Compute earnings per share considering the current plan and the two new plans. Note: Round your answers to 2 decimal places. Current Plan Plan D Plan E Earnings per share b-1. Compute the earnings per share if return on assets fell to 4.90 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 b-2. Which plan would be most favorable if return on assets fell to 4.90 percent? Consider the current plan and the two new plans. ○ Current Plan ○ Plan E ○ Plan D b-3. Compute the earnings per share if return on assets increased to 14.8 percent. Note: Round your answers to 2 decimal places. Earnings per share Current Plan Plan D Plan E
Dickinson Company has $11,960,000 million in assets. Currently half of these assets are financed with long-term debt at 9.8 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 9.8 percent. The tax rate is 45 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable. Under Plan D, a $2,990,000 million long-term bond would be sold at an interest rate of 11.8 percent and 373,750 shares of stock would be purchased in the market at $8 per share and retired. Under Plan E, 373,750 shares of stock would be sold at $8 per share and the $2,990,000 in proceeds would be used to reduce long- term debt. a. Compute earnings per share considering the current plan and the two new plans. Note: Round your answers to 2 decimal places. Current Plan Plan D Plan E Earnings per share b-1. Compute the earnings per share if return on assets fell to 4.90 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 b-2. Which plan would be most favorable if return on assets fell to 4.90 percent? Consider the current plan and the two new plans. ○ Current Plan ○ Plan E ○ Plan D b-3. Compute the earnings per share if return on assets increased to 14.8 percent. Note: Round your answers to 2 decimal places. Earnings per share Current Plan Plan D Plan E
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
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am. 122.
Transcribed Image Text:Dickinson Company has $11,960,000 million in assets. Currently half of these assets are financed with long-term debt at 9.8 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 9.8 percent.
The tax rate is 45 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable.
Under Plan D, a $2,990,000 million long-term bond would be sold at an interest rate of 11.8 percent and 373,750 shares of stock would
be purchased in the market at $8 per share and retired.
Under Plan E, 373,750 shares of stock would be sold at $8 per share and the $2,990,000 in proceeds would be used to reduce long-
term debt.
a. Compute earnings per share considering the current plan and the two new plans.
Note: Round your answers to 2 decimal places.
Current Plan
Plan D
Plan E
Earnings per share
b-1. Compute the earnings per share if return on assets fell to 4.90 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
b-2. Which plan would be most favorable if return on assets fell to 4.90 percent? Consider the current plan and the two new plans.
○ Current Plan
○ Plan E
○ Plan D
b-3. Compute the earnings per share if return on assets increased to 14.8 percent.
Note: Round your answers to 2 decimal places.
Earnings per share
Current Plan
Plan D
Plan E
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