EPS, Debt-to-Equity, Breakeven point  LexMart maintains a​ debt-to-equity ratio of 1.0 regardless of whether the firm experiences expansion or contraction. At the present​ time, LexMart has ​$1,000 par value bonds outstanding that pay 8​% annual interest. The firm also has 2.8 million shares of common stock outstanding that sells for ​$21 per share. a. Based on​ LexMart's current annual NOP of ​$22,000,000 and its corporate tax rate of 25​%, what is its​ EPS? b. If LexMart would like to finance a ​$63 million expansion while maintaining​ it's current​ debt-to-equity ratio of​ 1.0, how many bonds at ​$1,000 per bond and shares of stock will it have to sell to pay for the​ expansion? c. After the​ expansion, what level of annual NOP will LexMart have to generate to maintain its current level of​ EPS?

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
icon
Related questions
Question
EPS, Debt-to-Equity, Breakeven point  LexMart maintains a​ debt-to-equity ratio of 1.0 regardless of whether the firm experiences expansion or contraction. At the present​ time, LexMart has ​$1,000 par value bonds outstanding that pay 8​% annual interest. The firm also has 2.8 million shares of common stock outstanding that sells for ​$21 per share. a. Based on​ LexMart's current annual NOP of ​$22,000,000 and its corporate tax rate of 25​%, what is its​ EPS? b. If LexMart would like to finance a ​$63 million expansion while maintaining​ it's current​ debt-to-equity ratio of​ 1.0, how many bonds at ​$1,000 per bond and shares of stock will it have to sell to pay for the​ expansion? c. After the​ expansion, what level of annual NOP will LexMart have to generate to maintain its current level of​ EPS?
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education