Minion, Inc., has no debt outstanding and a total market value of $320,000. Earningsbefore interest and taxes, EBIT, are projected to be $47,000 if economic conditions arenormal. If there is strong expansion in the economy, then EBIT will be 19 percent higher.If there is a recession, then EBIT will be 30 percent lower. The company is considering a$165,000 debt issue with an interest rate of 6 percent. The proceeds will be used torepurchase shares of stock. There are currently 8,000 shares outstanding. Thecompany has a tax rate of 25 percent, a market-to-book ratio of 1.0, and the stock priceremains constant.a-1. Calculate earnings per share (EPS) under each of the three economic scenariosbefore any debt is issued. (Do not round intermediate calculations and roundyour answers to 2 decimal places, e.g., 32.16.)a-2. Calculate the percentage changes in EPS when the economy expands or enters arecession. (A negative answer should be indicated by a minus sign. Do not roundintermediate calculations and enter your answers as a percent rounded to 2decimal places, e.g., 32.16.)b-1. Calculate earnings per share (EPS) under each of the three economic scenariosassuming the company goes through with recapitalization. (Do not roundintermediate calculations and round your answers to 2 decimal places, e.g.,32.16.)b-2. Given the recapitalization, calculate the percentage changes in EPS when theeconomy expands or enters a recession. (A negative answer should be indicatedby a minus sign. Do not round intermediate calculations and enter your answersas a percent rounded to 2 decimal places, e.g., 32.16.)

EPS=Earnings attributable to Equity shareholders/ Number of shares Earnings attributable to…

Answered: Minion, Inc., has no debt outstanding…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Counts Accounting's beta is 1.6 and its tax rate is 25%. If it is financed with 27% debt, what is its unlevered beta? Do not round intermediate calculations. Round your answe to two decimal places.
aj.4
No-Growth Industries pays out all of its earnings as dividends. It will pay its next $6 per share dividend in a year. The discount rate is 21%. a. What is the price-earnings ratio of the company? b. What would the P/E ratio be if the discount rate were 20%?
Jenkins, Inc., has equity with a market value of $22.6 million and debt with a market value of $11.3 million. The cost of debt is 8 percent per year. Treasury bills that mature in one year yield 4 percent per year, and the expected return on the market portfolio over the next year is 10 percent. The beta of the company's equity is 1.11. The firm pays no taxes. a. What is the company's debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the company's weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the cost of capital for an otherwise identical all-equity firm? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Debt-equity ratio b. Weighted average cost of capital C. Cost of capital 0.50 % %
Fujita, Incorporated, has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $42,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 18 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $100,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for this problem. a-1. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded…
Now (use the following information) suppose that: The cost of debt (ra) is 3.875% (before tax), • Flotation costs (F) = 7% of issue price, The debt is trading at $1,025.00, There are 7,250 bonds outstanding, • The tax rate is .35, The LAST dividend paid yesterday (Do) = $4.56, The expected constant growth rate (g) = 2.75%, Beta = 1.55, TRF = 1.14%, = 4.5%, (market risk premium) The firm has 250,000 shares of common stock outstanding, Common stock shares are trading at $47.32/share (Po). RPm Given the above information, what is the Market value of the firm's debt? $. Given the above information, what is the Market value of the firm's equity? $. Now calculate the weight of debt for the firm (Wa). You will use this to calculate the WACC. Now calculate the weight of equity for the firm (Wee). You will use this to calculate the WACC. What is the cost of existing common equity (retained earnings)? (Briefly describe your approach/method as well as your answer) What is the cost of NEW common…
# 5 Fujita, Incorporated, has no debt outstanding and a total market value of $369,600. Earnings before interest and taxes, EBIT, are projected to be $51,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 15 percent higher. If there is a recession, then EBIT will be 24 percent lower. The company is considering a $185,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,400 shares outstanding. The company has a tax rate of 24 percent, a market-to-book ratio of 1.0 before recapitalization, and the stock price changes according to M&M. a-1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. (A…
Solve this
Jenkins, Inc., has equity with a market value of $23.1 million and debt with a market value of $9.24 million. The cost of debt is 10 percent per year. Treasury bills that mature in one year yield 6 percent per year, and the expected return on the market portfolio over the next year is 11 percent. The beta of the company's equity is 1.16. The firm pays no taxes. a. What is the company's debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the company's weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) c. What is the cost of capital for an otherwise identical all-equity firm? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Debt-equity ratio b. Weighted average cost of capital C. Cost of capital 0.40 11.29% %
Fujita, Incorporated, has no debt outstanding and a total market value of $422,400. Earnings before interest and taxes, EBIT, are projected to be $55,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 14 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $205,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,800 shares outstanding. Ignore taxes for questions (a) and (b). Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. a-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be…

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS