Effect of Financing on Earnings per ShareHenriksen Co., which produces and sells biking equipment, is financed as follows:Bonds payable, 10% (issued at face amount)Preferred $2 stock, $20 parCommon stock, $25 parIncome tax is estimated at 40% of income.$1,300,0001,300,0001,300,000Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is (a) $585,000, (b) $715,000, and (c) $845,000.

Step 1: Understanding meaning of earning per share:- Earnings per common share need to be calculated…

Answered: Effect of Financing on Earnings per…

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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9. The Patrick Company's cost of common equity (rs) is 16%, its before-tax cost of debt (ra) is 8%, and its marginal tax rate is 20%. The stock sells at $41 per share and bonds sell at $900 per bond. Assets Cash Account Receivable Inventories $100,000 $300,000 $400,000 Liabilities and Equity Long-term debt (par value-$1000) $2,000,000 Common stock (par value=$1) $200,000 Retained earnings $2,800,000 Plant and equipment, net $4,200,000 Total assets $ 5,000,000 Total liabilities and equity What is Patrick's WACC if it raises capital based on market value capital structure? a. 12.16% $5,000,000 b. 14.56% c. 14.27% d. 12.80% e. 13.88%
You are given the following information for Lightning Power Co. Assume the company's tax rate is 24 percent. Debt: 19,000 6.8 percent coupon bonds outstanding, $1,000 par value, 24 years to maturity, selling for 111 percent of par; the bonds make semiannual payments. Common 520,000 shares outstanding, selling for $70 per share; beta is 1.21. stock: Preferred stock: 23,000 shares of 4.6 percent preferred stock outstanding, currently selling for $91 per share. The par value is $100 per share. Market: 6 percent market risk premium and 5.5 percent risk-free rate. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC %
Can you seperate your answer as the top part as 1 and second part as 2
Percent of capital structure: Preferred stock Common equity (retained earnings) Debt Additional information: Corporate tax rate Dividend, preferred 15% 45 40 35% $ 10.00 Dividend, expected common $ 5.50 Price, preferred $ 98.00 Growth rate 10% Bond yield 11% Flotation cost, preferred $ 8.20 $ 77.00 Price, common Calculate the weighted average cost of capital for Digital Processing Incorporated Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Answer is complete but not entirely correct. Debt Preferred stock Common equity (retained earnings) Weighted average cost of capital Weighted Cost 7.15 11.14 X % 7.86 26.15 %
what is the cost of debt after tax? what is the cost of PS what is the cost of common stock? what is the weight of the bond what is the weight of the stock what is the weight of preferred stock what is the WACC?
Debra Diacono, CFO of James Ltd a listed Australian company, has approached you for advice on how to estimate the company’s weighted average cost of capital. She supplies you with the following information to assist you with your calculations: 13-week Treasury note yield 3.00% p.a. , 10-year government bond rate 3.50% p.a. , Number of James Ltd shares on issue 10 million Current share price $45.60 Bond details: One thousand 6% fixed-rate bonds with a face value of $100,000 each initially issued with 10 years to expiry 4 years ago. Coupons are paid annually with one full year until the next coupon is paid 10-year bonds with the same credit rating are currently being issued with coupon rates = 5.5% p.a. 6-year bonds with the same credit rating are currently being issued with coupon rates = 4.5% p.a. Corporate tax rate 30%, Market risk premium 7% p.a., Standard deviation of returns on the ASX 200 25% p.a., Standard deviation of returns on James Ltd shares 30% p.a., Covariance between…
You are given the following Information for Lighting Power Company. Assume the company's tax rate is 22 percent. 17,000 6.6 percent coupon bonds outstanding, $1,000 par value, 26 years to maturity, selling for 106 percent of par; the bonds make semiannual payments. Debt: Common 500,000 shares outstanding, selling for $68 per share; the beta is 1.19. stock: 22,000 shares of 4.4 percent preferred stock outstanding, a $100 par value, currently selling for $89 per share. Preferred stock: Market: 7 percent market risk premlum and 5.5 percent risk-free rate. What is the company's WACC? (Do not round Intermedlate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC
Consider the following information for Watson Power Company: Debt: Common stock: Preferred stock: Market: Find the WACC. 2,000 7 percent coupon bonds outstanding, $1,000 par value, 19 years to maturity, selling for 104 percent of par; the bonds make semiannual payments. Assume the company's tax rate is 34 percent. Multiple choice: A) 10.18% B) 10.68% C) 11.09% D) 10.28% E) 10.42% 48,000 shares outstanding, selling for $63 per share; the beta is 1.16. 6,500 shares of 6.5 percent preferred stock outstanding, currently selling for $106 per share. 8 percent market risk premium and 6 percent risk-free rate.
Online Network Inc. has a net income of $700,000 in the current fiscal year. There are 100,000 shares of common stock outstanding, along with convertible bonds, which have a total face value of $1.5 million. The $1.5 million is represented by 1,500 different $1,000 bonds. Each $1,000 bond pays 6 percent interest. The conversion ratio is 10. The firm is in a 20 percent tax bracket. a. Compute basic earnings per share. (Do not round intermediate calculations and round your answer to 2 decimal places.) Basic earnings per share C b. Compute diluted earnings per share. (Do not round intermediate calculations and round your answer to 2 decimal places.) 200 Diluted earnings per share
Simonelli Co. is considering the following alternative financing plans: Plan 1 Plan 2 Issue 8% bonds (at face value) $5,000,000 4,000,000 Issue preferred $2.00 stock, $20 par — 2,000,000 Issue common stock, $25 par 5,000,000 4,000,000 Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming income before bond interest and income tax is $1,000,000.
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Given the following information: Percent of capital structure: Preferred stock Common equity (retained earnings) Debt Additional information: Corporate tax rate. Dividend, preferred $ 5.00 Dividend, expected common $ 5.50 Price, preferred $101.00 Growth rate Bond yield. 34% 4% 5% Flotation cost, preferred $5.20 Price, common $ 74.00 Debt Preferred stock Common equity (retained earnings) Weighted average cost of capital 20% 70 10. Calculate the weighted average cost of capital for Digital Processing Inc. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Notice that this problem asks for the weighted costs. These are the unweighted costs times the weights. Like this: (ka)(wa) weighted cost of debt. Weighted Cost % 0.00%

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