Effect of Financing on Earnings Per Share Three different plans for financing a $5,900,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income. Plan 1 Plan 2 Plan 3 10% bonds $2.950,000 Preferred 10% stock, $100 par $2,950,000 1,475,000 Common stock, $4 par $5,900,000 2,950,000 1,475,000 Total $5,900,000 $5,900,000 $5,900,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $1,100,000. Earnings per share of common stock Plan 1 per share Plan 2 per share Plan 3 per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $715,000. Earnings per share of common stock Plan per share Plan 2 per share Plan 3 per share 3. Complete the tables below regarding advantages and disadvantages of each plan. Plan 1 The advantage of Plan 1 is that The disadvantage is that its EPS is Plan 2

Effect of Financing on Earnings Per Share Three different plans for financing a $5,900,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income. Plan 1 Plan 2 Plan 3 10% bonds $2.950,000 Preferred 10% stock, $100 par $2,950,000 1,475,000 Common stock, $4 par $5,900,000 2,950,000 1,475,000 Total $5,900,000 $5,900,000 $5,900,000 Round the answers to nearest cent. Instructions: 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $1,100,000. Earnings per share of common stock Plan 1 per share Plan 2 per share Plan 3 per share 2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $715,000. Earnings per share of common stock Plan per share Plan 2 per share Plan 3 per share 3. Complete the tables below regarding advantages and disadvantages of each plan. Plan 1 The advantage of Plan 1 is that The disadvantage is that its EPS is Plan 2

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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2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $650,000. Earnings per share of common stock per share per share per share Plan 1 Plan 2 Plan 3 +A +A +A
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YE. Coyote Industries finances its projects with 25 percent debt, 20 percent Preferred Stock and 55 percent common stock, Based upon the information provided below, what is the company's weighted average cost of capital? Y. E. Coyote 768% Yield to Maturity of Bonds Dividend of Preferred Stock Dividend at time 0 (Do) $8.59 $4.93 Constant Growth Rate of Common Stock (g) Preferred Stock Price 4% $91.88 $53.04 Common Stock Price 21% Tax Rate Multiple Choice 10.85% 10.52% 976%
Railsplitters, Inc. has the following information for its capital structure: Instrument: Amount Issued Current Price YTM Bond A $500 Million 100.82 4.36% Bond B $350 Million 101.36 4.49% Common Stock 42.5 Million Shares $28.21 per share E(R ) Market = 8.65% β = 1.27 Expected Dividend = $1.95 Rf = 2.10% Growth Rate = 2.75% Given this information, if the tax rate of the firm is 30%, what is the after-tax cost of debt?
Stock Expected Dividend Expected Capital Gain A $0 $10 B $5 $5 C $10 $0 A.) If each stock is priced at $175, what are the expected net precentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 21% (the effective tax rate on dividends received by corporations is 6.3%), and (iii) an individual with an effective tax rate of 10% on dividends and 5% on capital gains? B.) Suppose that investors pay 40% tax on dividends and 10% tax on capital gains. If stocks are priced to yield an after-tax return of 10%, what would A,B, and C each sell for? Assume the expected dividend is a level perpetuity.
Weighted average cost of capital A. The capital for investment of Executive Consultants, Inc. is as follows: Sources of capital Capital Debt (corporate bonds) $4,100,000 Prefferent shares $2,200,000 Common shares $2,800,000 B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond.C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share.D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23.E. Executive Consultants, Inc. has a tax liability of 35%.Problems:You must submit the procedure and all the calculations.1. Determine the capital structure of Executive Consultants, Inc.2. Calculate the cost of debt after taxes.3. Calculate the cost of preferred equity.
Percent of capital structure: Preferred stock Common equity (retained earnings) Debt Additional information: Corporate tax rate Dividend, preferred Dividend, expected common Price, preferred Growth rate Bond yield Flotation cost, preferred Price, common 15% 45 40 35% Debt Preferred stock Common equity (retained earnings) Weighted average cost of capital $ 8.00 $ 3.50 $ 105.00 98 8% $ 10.40 $ 78.00 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. Weighted Cost 5.20 % 8.33 11.50 25.03 %
Given the following information: Percent of capital structure: Debt 35% Preferred stock 20 Common equity (retained earnings) 45 Additional information: Bond coupon rate 11% Bond yield to maturity 9% Dividend, expected common $ 5.00 Dividend, preferred $ 12.00 Price, common $ 60.00 Price, preferred $ 106.00 Flotation cost, preferred $ 4.50 Growth rate 6% Corporate tax rate 25% Calculate the Hamilton Corporation's weighted cost of each source of capital and the weighted average cost of capital. Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.
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Capital structure of PT. PNA now is: 2. Debt IDR 2.000.000.000,- IDR 3,000,000,000,- Preference shares. Ordinary shares IDR 5,000,000,000 Fees for each funding, debt 6%, Preferred stock 6%, Commont stock 10% and tax 50%. The amount of profit for ordinary shareholders that is currently Rp. 2,000,000,000 and 50% will be paid as dividends, and the rest will be withheld. The company will use the retained earnings as additional capital with the assumption that the capital composition and average are maintained its cost of capital. From the data above calculate: A. Weighted cost of capital B. Additional total capital so that the composition of new capital remains constant C. Calculate the new capital structure
A corporation has issued 50,000 shares of $100 par common stock and holds 6,000 of these shares as treasury stock. If the corporation declares a $2 per share cash dividend, what amount will be recorded as cash dividends? Group of answer choices $44,000 $88,000 $96,000 $100,000
Percent of capital structure: Preferred stock Common equity (retained earnings) Debt Additional information: Corporate tax rate 45 25 15% 40 35% Dividend, preferred $ 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% 11.14x 7.86 X 26.15 %