Problem 1Duke & Duke currently has 4.5million shares of stock outstanding and willreport earnings after taxes of $6.8 million inthe current year. The company has hiredGoldman Sachs as the lead underwriter andis considering the issuance of 800, 000additional shares that will sell to the publicfor $36 per share, with a 6.25%underwriting spread.A) Calculate the netprice per share to the corporation that Duke& Duke will receive. B) How much will Duke& Duke receive from the sale of additionalshares in total net proceeds?C) Calculatethe Earnings Per Share before the stockissue.D)d. Calculate the Earnings Per Shareimmediately after the issue.E) What will theearnings per share be if the company canearn 9.25% on the total net proceeds of thestock issue in time to include it in thecurrent year's earnings. F) Should Duke &Duke proceed with the issuance of newshares?

A) Net Price Per Share to the Corporation:The net price per share to the corporation is calculated…

Answered: Problem 1Duke & Duke currently has 4.5…

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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A company with EBIT of $6,000,000 is considering two financing alternatives. The first alternative would have $25 million of bonds at 8% interest and 1,000,000 common shares outstanding, whereas the second would have $47.5 million of bonds at 8% interest and only 750,000 shares outstanding. The company is in the 35% tax bracket. Required: Part 1: Construct the bottom half of the income statement (including EPS) for each financing alternative when EBIT is at $6,000,000. Part 2: Construct the bottom half of the income statement (including EPS) for each alternative if EBIT increases by 20%. Part 3: Construct the bottom half of the income statement (including EPS) for each alternative if EBIT decreases by 20%. Part 4: What is the EBIT/EPS indifference point for this firm?
1. Warephase Corporation has preferred stock outstanding. The stock has a 16% dividend rate. The stock's market price is $80 per share, and its par value is $75. If new shares are issued, the firm will pay $3.50 per share in flotation costs. The corporate tax rate is 21%. What is the company's cost of preferred stock financing? O 12.40% O 16.73% O 13.46% 9.12% 15.69%
Answer in excel format and explain formulas used.
Payday Inc.wants to issue $2 million of debt @ 5% to either issue a dividend or complete a share repurchase. The stock is currently trading at $25 per share and there are 500,000 shares outstanding. The tax rate is 20%. What would be the new share price if Payday Inc. used the debt to complete a buyback? What would be the new share price if Payday Inc. issued a dividend? What would be the new shares outstanding if Payday Inc. repurchased shares? What would be the new shares oustanding if Paycheck Inc. issued a dividend?
n Tina Black's Fabrics is currently an all equity firm that has 15,000 shares of stock outstanding at a market price of $12.50 a share. Company management has decided to issue $60,000 worth of debt and use the funds to repurchase shares of the outstanding stock at the market price. The interest rate on the debt will be 7%. Ignoring taxes, what is the earnings per share (EPS) at the break-even level of earnings before interest and taxes (EBIT)? O A. O B. O D. $1.143 O C. $1.500 SOE. $1.125 $0.875 $0.667 27/
#18
Osborne Construction currently has the following capital structure: Debt: $20,500,000 paying 9.5% coupon bonds outstanding with 15 years to maturity, an annual before-tax yield to maturity of 8% on a new issue. The bonds currently sell for $1,125 per $1,000 face value. Ordinary Shares: 100,000 shares outstanding currently selling for $45 per share. The company just paid a $3.50 dividend per share and is experiencing a 5% growth rate in dividends, which it expects to continue indefinitely. (Note: The firm's marginal tax rate is 30%.) Required: a) Calculate the current total market value of the company. b) Calculate the capital structure of the company. c) Calculate the weighted average cost of capital (WACC) for the firm. d) Discuss the significance of calculating WACC for this company.
Answer #5 only

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