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 2.3 million shares of common stock outstanding that sells for $22 per share. a. Based on LexMart's current annual NOP of $21,500,000 and its corporate tax rate of 25%, what is its EPS? b. If LexMart would like to finance a $64 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?
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 2.3 million shares of common stock outstanding that sells for $22 per share. a. Based on LexMart's current annual NOP of $21,500,000 and its corporate tax rate of 25%, what is its EPS? b. If LexMart would like to finance a $64 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?
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 13P
Related questions
Question
100%
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 2.3 million shares of common stock outstanding that sells for $22 per share.
a. Based on LexMart's current annual NOP of $21,500,000 and its corporate tax rate of 25%, what is its EPS?
b. If LexMart would like to finance a $64 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
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT