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For the year ended 2020, ABC Company has $1,250,000 of debt with an annual interest rate of 3%, $2,000,000 of preferred stock with an annual preferred dividend rate of 7%, $3,500,000 of common stock (total book value), and 251,679 common shares outstanding. In 2021, the company plans to raise $500,000 external capital to fund a new project through a term loan with an interest rate of 8%. The new loan's sinking fund provision requires the loan to be fully amortized over the next 5 years, commencing in 2022. The company expects that the existing debt and preferred stock will not be retired until the year 2026; hence, they will remain in the same amount in 2021. If the project goes as planned, the company expects $1,200,000 of EBIT in 2021. The company's tax rate is

For the year ended 2020, ABC Company has $1,250,000 of debt with an annual interest rate of 3%, $2,000,000 of preferred stock with an annual preferred dividend rate of 7%, $3,500,000 of common stock (total book value), and 251,679 common shares outstanding. In 2021, the company plans to raise $500,000 external capital to fund a new project through a term loan with an interest rate of 8%. The new loan's sinking fund provision requires the loan to be fully amortized over the next 5 years, commencing in 2022. The company expects that the existing debt and preferred stock will not be retired until the year 2026; hence, they will remain in the same amount in 2021. If the project goes as planned, the company expects $1,200,000 of EBIT in 2021. The company's tax rate is

Essentials Of Investments
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
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For the year ended 2020, ABC Company has $1,250,000 of debt with an annual interest rate of 3%, $2,000,000 of preferred stock with an annual preferred dividend rate of 7%, $3,500,000 of common stock (total book value), and 251,679 common shares outstanding. In 2021, the company plans to raise $500,000 external capital to fund a new project through a term loan with an interest rate of 8%. The new loan's sinking fund provision requires the loan to be fully amortized over the next 5 years, commencing in 2022. The company expects that the existing debt and preferred stock will not be retired until the year 2026; hence, they will remain in the same amount in 2021. If the project goes as planned, the company expects $1,200,000 of EBIT in 2021. The company's tax rate is 40%. What will the expected earnings per share under the new debt alternative be? Round your answer to two decimal places of dollar, but ignore dollar sign, e.g., x.xx. (Hint: Refer to the EBIT-EPS Analysis example (table) in the long-term financing decisions.)
Transcribed Image Text:For the year ended 2020, ABC Company has $1,250,000 of debt with an annual interest rate of 3%, $2,000,000 of preferred stock with an annual preferred dividend rate of 7%, $3,500,000 of common stock (total book value), and 251,679 common shares outstanding. In 2021, the company plans to raise $500,000 external capital to fund a new project through a term loan with an interest rate of 8%. The new loan's sinking fund provision requires the loan to be fully amortized over the next 5 years, commencing in 2022. The company expects that the existing debt and preferred stock will not be retired until the year 2026; hence, they will remain in the same amount in 2021. If the project goes as planned, the company expects $1,200,000 of EBIT in 2021. The company's tax rate is 40%. What will the expected earnings per share under the new debt alternative be? Round your answer to two decimal places of dollar, but ignore dollar sign, e.g., x.xx. (Hint: Refer to the EBIT-EPS Analysis example (table) in the long-term financing decisions.)
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