Dickinson Company has $12 million in assets. Currently half of these assets are financed with long-term debt at 10 percent and halfwith common stock having a par value of $8. Ms. Park, Vice President of Finance, wishes to analyze two refinancing plans, one withmore debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 10 percent. The tax rateis 45 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable.Under Plan D, a $3 million long-term bond would be sold at an interest rate of 12 percent and 375,000 shares of stock would bepurchased in the market at $8 per share and retired.Under Plan E, 375,000 shares of stock would be sold at $8 per share and the $3,000,000 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.Earnings per shareCurrent PlanEarnings per sharePlan Db-1. Compute the earnings per share if return on assets fell to 5 percent.Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Leave no cells blank becertain to enter O wherever required.Current PlanPlan EPlan DPlan E

A financial indicator called earnings per share (EPS) shows how much of a company's profit is…

Answered: Dickinson Company has $12 million in…

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

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XYZ anticipates eaming $1,800,000 and paying $300,000 in dividends this year. XYZ's capital structure is 20% debt and 80% equity and its tax rate is 35%. Compute the equity breakpoint to the nearest dollar.
Ohio Quarry Inc. has $20 million in assets. Its expected operating income (EBIT) is $4 million and its income tax rate is 40 percent. If Ohio Quarry finances 20 percent of its total assets with debt capital, the pretax cost of funds is 10 percent. If the company finances 40 percent of its total assets with debt capital, the pretax cost of funds is 15 percent. Round your answers to the questions below to two decimal places. Determine the rate of return on equity (ROE) under the three different capital structures (0, 20, and 40% debt ratios).0% debt ratio: % 20% debt ratio: % 40% debt ratio: % Which capital structure yields the highest expected ROE? yields the highest expected ROE. Determine the ROE under each of the three capital structures (0, 20, and 40% debt ratios) if expected EBIT decreases by 40 percent.0% debt ratio: % 20% debt ratio: % 40% debt ratio: % Which capital structure yields the highest ROE calculated in part c? yields the highest expected ROE.…
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Maddux Corporation has an EBIT of $835,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 16 percent and the corporate tax rate is 21 percent. The company also has a perpetual bond issue outstanding with a market value of $2.1 million. What is the value of the company? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Value of the company
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Duffert Industries has total assets of $970, 000 and total current liabilities (consisting only of accounts payable and accruals) of $115,000. Duffert finances using only long-term debt and common equity. The interest rate on its debt is 9% and its tax rate is 25%. The firm's basic earning power ratio is 17% and its debt - to capital rate is 40% What are Duffert's ROE and ROIC? Do not round your intermediate calculations. Group of answer choices a. 12.68%; 14.03% b.13.63%; 14.46% с 10.90%; 12.44% d. 15.54%; 16.06% e. 8.86%; 12.73%

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