Calculate the new stock price on these general accounting question Eaton, Inc., wishes to expand its facilities. The companycurrently has 5 million shares outstanding and no debt. Thestock sells for $36 per share, but the book value per share is$8. The net income is currently $4 million. The new facility willcost $45 million, and it will increase net income by $800,000.Assume a constant price-earnings ratio.Calculate the new stock price.

Step 1: Define Earnings Per ShareThe ratio of the net income available to equity shareholders…

Answered: Eaton, Inc., wishes to expand its…

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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Marker, Incorporated, wishes to expand its facilities. The company currently has 5 million shares outstanding and no debt. The stock sells for $40 per share, but the book value per share is $53. Net income is currently $3.6 million. The new facility will cost $20 million, and it will increase net income by $280,000. The par value of the stock is $1 per share. Assume a constant price-earnings ratio. a-1. Calculate the new book value per share. Assume the stock price is constant. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-2. Calculate the new total earnings. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) a-3. Calculate the new EPS. Include the incremental net income in your calculations. (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) a-4. Calculate the new stock price. Include…
Johnson Inc. wishes to expand its facilities. The company currently has 6 million shares outstanding and no debt. The stock sells for $50 per share, but the book value per share is $20. Net income for Johnson is currently $12 million. The new facility will cost $20 million, and it will increase net income by $800,000. Johnson raises stock at the current price to finance the facility. Assume a constant price–earnings ratio. Does stock price dilution occur? (A) stock price dilution occurs. (B) stock price dilution does not occur.
Wayne, Inc., wishes to expand its facilities. The company currently has 6 million shares outstanding and no debt. The stock sells for $28 per share, but the book value per share is $8. Net income is currently $4.2 million. The new facility will cost $42 million, and it will increase net income by $810,000. Assume a constant price-earnings ratio. a-1. Calculate the new book value per share. (Do not round intermediate calculations
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KMS corporation has assets of $650 million, $65 million of which are cash. It has debt of $216.7 million. If KMS repurchases $21.7 million of its stock: a. What changes will occur on its balance sheet? b. What will be its new leverage ratio? a. What changes will occur on its balance sheet? (Select the best choice below.) A. Both the cash balance and shareholder equity will drop by $21.7 million. B. Both the cash balance and shareholder equity will increase by $21.7 million. C. Both accounts receivable and shareholder equity will drop by $21.7 million. D. Debt will increase by $21.7 million and shareholder equity will decrease by $21.7 million. b. What will be its new leverage ratio? The new leverage ratio after the repurchase is %. (Round to one decimal place.)
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A company currently has EBIT of $25,000 and is all-equity financed. The company expect EBIT to stay at this level indefinitely. Now assume the firm issues $50,000 of debt paying interest of 6% per year, using the proceeds to retire equity. The debt is expected to be permanent. What will happen to the total value of the firm? Make a case for why X is the best option and explain what considered, what assumptions you made and why?
Covan, Inc. is expected to have the following free cash flow: a. Covan has 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price? b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2? a. Covan has 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price? The stock price should be $ (Round to the nearest cent.) A b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? If you plan to sell Covan at the beginning of year 2, its price should be $ (Round to the nearest cont.) c. Assume you bought Covan stock at the beginning of…

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