Recapitalization A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to leveraged capital structure. Theproposal is for Focus to sell $53,000,000 worth of long-term debt at an interest rate of 7% and then repurchase as many shares as possible at a price of $25 per share.Focus currently has 4,700,000 shares outstanding and expects EBIT to be $22,000,000 per year in perpetuity. Ignoring taxes, calculate the following:a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization.b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures.c. The EBIT where EPS is the same for both capital structures.d. The EBIT where EPS is zero for both capital structures.a. The number of shares outstanding for Focus if it adopts the proposed recapitalization is shares. (Round to the nearest whole number.)(Round to the nearest dollar.)(Round to two decimal places.)The per-share price for Focus if it adopts the proposed recapitalization is $The debt-to-equity ratio for Focus if it adopts the proposed recapitalization isb. The earnings per share (EPS) for Focus under the current capital structure is $The earnings per share (EPS) for Focus under the proposed capital structure is $The return on equity (ROE) for Focus under the current capital structure is %.The return on equity (ROE) for Focus under the proposed capital structure isc. The EBIT where EPS is the same for both capital structures is $(Round to the nearest cent.)(Round to the nearest cent.)(Round to two decimal places.)%. (Round to two decimal places.)(Round to the nearest dollar.)d. The EBIT where EPS is zero for both capital structures is $(Round to the nearest dollar.)

Comment- Multiple Questions Asked. Earnings per share- Earnings per share (EPS) is a financial…

ng, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization. nd the return on equity (ROE) for Focus under the current and proposed capital structures. e for both capital structures. both capital structures. ng for Focus if it adopts the proposed recapitalization is shares. (Round to the nearest whole number.) dopts the proposed recapitalization is $ (Round to the nearest dollar.) (Round to two decimal places.) it adopts the proposed recapitalization is r Focus under the current capital structure is $ (Round to the nearest cent.) Focus under the proposed capital structure is $ (Round to the nearest cent.)

ng, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization. nd the return on equity (ROE) for Focus under the current and proposed capital structures. e for both capital structures. both capital structures. ng for Focus if it adopts the proposed recapitalization is shares. (Round to the nearest whole number.) dopts the proposed recapitalization is $ (Round to the nearest dollar.) (Round to two decimal places.) it adopts the proposed recapitalization is r Focus under the current capital structure is $ (Round to the nearest cent.) Focus under the proposed capital structure is $ (Round to the nearest cent.)

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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To eliminate all risk (including credit risk) an American company with a contract to sell goods to a foreign country can hedge by purchase a forward rate contract. O No answer text provided. O True O No answer text provided. O False
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An offering of shares to institutional investors at a discount to the current market price is known as a: Select one: a. Initial Public Offering (IPO). b. Private Placement c. Rights Issue d. Dividend Reinvestment Plan (DRP).
A6)
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What is reflected in the additional paid-in capital account?Required to answer. Single choice. a. Whichever is higher of (1) the difference between the market price and the par value when the stock was issued and (2) the difference between the market price and the par value when the stock was reacquired b. Whichever is lower of (1) the difference between the market price and the par value when the stock was issued and (2) the difference between the market price and the par value when the stock was reacquired c. The difference between the market price and the par value when the stock was reacquired d. None of the above e. The difference between the market price and the par value when the stock was issued.
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Figure 2 (a) Financial engineering deals with the design of new assets. Draw the payoff (at t=1) of the following butterfly spread: payoff of portfolio Purchase 1 call with exercise price a Sell 2 calls with exercise price (atb)/2 Purchase 1 call with exercise price b as a function of the underlying stock price S at t=1 where a=120 and b=140. (b) An individual agent thinks that there is a high probability that the Dow Jones will have a payoff (or points) between a=34,000 and b-36,000 at t=1. 1=nd Design a digital option (see Figure 1) as a sequence of calls on the Dow that converges to a pure bet on getting $1 on the interval [34,000, 36,000]. ie, if the Dow lies between SE[34,000, 36,000] at t=1, then the portfolio of calls pays off exactly $1. The payoff is 0 otherwise. a+8 Figure 1 (Digital option) payoff a=34,000 b-36,000 S. Hint: You have to modify the sell strategies of a butterfly spread to obtain a payoff as given in Figure 2 and then adjust n and 8 appropriately.
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