Edsel Research Labs has $26.40 million in assets. Currently half of these assets are find with common stock having a par value of $10. Ms. Edsel, the 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 8 percent. The tax rate is 30 percent. Under Plan D, a $6.60 million long-term bond would be sold at an interest rate of 8 percent and 660,000 shares of stock would be purchased in the market at $10 per share and retired. Under Plan E, 660,000 shares of stock would be sold at $10 per share and the $6,600,000 in proceeds would be used to reduce long-term debt. a-1. Compute earnings per share considering the current plan and the two new plans. Note: Round your answers to 2 decimal places. Current Plan D Plan E Earnings per Share $ $ $ 0.42 0.20 1.26

Edsel Research Labs has $26.40 million in assets. Currently half of these assets are find with common stock having a par value of $10. Ms. Edsel, the 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 8 percent. The tax rate is 30 percent. Under Plan D, a $6.60 million long-term bond would be sold at an interest rate of 8 percent and 660,000 shares of stock would be purchased in the market at $10 per share and retired. Under Plan E, 660,000 shares of stock would be sold at $10 per share and the $6,600,000 in proceeds would be used to reduce long-term debt. a-1. Compute earnings per share considering the current plan and the two new plans. Note: Round your answers to 2 decimal places. Current Plan D Plan E Earnings per Share $ $ $ 0.42 0.20 1.26

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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Kottinger's Kamp Supplies is considering an investment in new manufacturing equipment. The equipment costs $220,000 and will provide annual after-tax inflows of $50,000 at the end of each of the next seven years. The firm's market value debt/equity ratio is 25%, its cost of equity is 14%, and its pre-tax cost of debt is 7%. The flotation costs of debt and equity are 3% and 9%, respectively. The firm's combined marginal federal and provincial tax rate is 40%. Assume the project is of approximately the same risk as the firm's existing operations. What is Kottinger's weighted average cost of capital? Multiple Choice O O 8.91% 11.14% 10.86% 12.04% O 9.99%
A firm expects to have net income of $5,000,000 during the next year. The company’s target capital structure is 60% debt and 40% equity. The company's director of capital budgeting has determined that the optimal capital budget for the coming year is $5,000,000. If MSL Tech follows a residual distribution policy (with all distributions in the form of dividends) to determine the coming year’s dividend, then what is the firm’s expected dividend payments? $2,000,000 $3,000,000 $5,000,000 $6,000,000 Using the data from Question 31, find the dividend payout ratio for the company. 20% 40% 60% 50%
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Don't provide handwritten solution.
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Shelton Tax Services is considering investing in new software for their corporate tax business. The investment will require an outlay of $350,000 initially, and is expected to generate the following after-tax cash flows: Year 1, $60,000; Year 2, $80,000; Year 3, $105,000; Year 4, $120,000; Year 5, $145,000. Shelton uses a discount rate of 10%. What is the net present value of the proposed investment? Should this investment be accepted or rejected? Must show your computation steps. Use the appropriate tables in Appendix A to obtain the relevant present value factor and round up your final answer to the nearest dollar.
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Quigley Inc. is considering two financial plans for the coming year. Management expects sales to be $300,000, operating costs to be $265,000, assets (which is equal to its total invested capital) to be $200,000, and its tax rate to be 25%. Under Plan A it would finance the firm using 25% debt and 75% common equity. The interest rate on the debt would be 8.8%, but under a contract with existing bondholders the TIE ratio would have to be maintained at or above 3.6. Under Plan B, the maximum debt that met the TIE constraint would be employed. Assuming that sales, operating costs, assets, total invested capital, the interest rate, and the tax rate would all remain constant, by how much would the ROE change in response to the change in the capital structure? Do not round your intermediate calculations. a. 7.92% O b. 7.36 %1 O c. 8.00% O d. 7.84% O e. 7.76%

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