User Account

All Pages

Impact on eps if new shares are issued to fund the centre

Assignment Help Financial Management
Reference no: EM13214436

Brown Ltd operates outdoor amusement centres in a number of country towns. The company has decided to build another centre that is expected to generate a permanent increase in EBIT of $100,000 pa. Current EBIT is $350,000. Brown currently has a capital structure that utilises bonds, ordinary equity and preference shares. The $200,000 of issued bonds pay 8% pa. Preference shares pay an annual fixed dividend of $150,000. Currently 250,000 ordinary shares have been issued and are trading at $2 per share. The company pays tax at 30%.

a) Brown needs to raise $500,000 to construct the new amusement centre. Assuming the company can issue new shares at the current market price, what is the impact on EPS if new shares are issued to fund the centre?

b) If new debt can be raised at a 10% interest rate, what is the impact on EPS of using debt rather than a new equity issue?

Brown Ltd depends on mainly on sunny weather to generate its expected EBIT. Using the information above together with the two following scenarios calculate the impact of the debt and equity financing alternatives if:

a) Weather is good which will increase attendances and increase EBIT to $600,000

b) Weather is poor which will decrease attendances and reduce EBIT to $320,000

c) Calculate the indifference point

Reference no: EM13214436

Questions Cloud

Determine whether the two inequalities above are consistent : US Output: 100 units Labor: 20 workers Wages: $3 Exports:$90 UK Output: 50 units Labor: 20 workers Wages:$2 Exports: $45 1.) Compare the relative productivity with the wage ratio 2.) Then calculate the ratio of the two exports. 3.) Determine whether ..
Explain molar analytical concentration of kcl : A solution was prepared by dissolving 5.76g of KCL*MgCl2*6H2O (277.85g/mol) in sufficient water to give 2.000L
Explain nmr spectra show one signal for isomer : There are three isomeric dichlorocyclopropanes. Their 1H NMR spectra show one signal for isomer 1, two signals for isomer 2, and three signals for isomer
Explain how is economic growth measured : How is economic growth is measured Which factor of economic growth is the most difficult to measure accurately Make recommendations on how the factor you identified can be measured more accurately.
Impact on eps if new shares are issued to fund the centre : Brown needs to raise $500,000 to construct the new amusement centre. Assuming the company can issue new shares at the current market price, what is the impact on EPS if new shares are issued to fund the centre?
What option position reproduces the debt profile : assuming a 10% risk-free rate and a USD 110.00 debt due in one year, use the bond-spread approach of the Merton model to fill in the spread (in basis points) associated with the indicated level of the SPY investment in the table below: SPY value (..
State higher temperature violates the law of thermodynamics : Show why the transfer of heat from an object with lower temperature to an object with higher temperature violates the second law of thermodynamics.
How much was the firms earnings before taxes ebt : How much was the firm's earnings before taxes EBT and what was Ramco's operating income, or EBIT (a.k.a. "Operating income"), in millions
State the complete neutralization reaction occurs : What are the spectator ions in the solution after the complete neutralization reaction occurs when mixing the strong base NaOH

Reviews

Write a Review

Financial Management Questions & Answers

  Draw policy conclusions from the barings case

Have global financial markets become safer or riskier thanks to the presence of derivative instruments? Elaborate your argument using financial and economic analysis

  Whats the monthly payment

Whats the monthly payment and how much is the borrowers income tax write off in the first year?

  Negative growth stock

Questions related to Negative growth stock

  Fundamentals of managerial finance

Bonds are thought to be a nice constant investment, paying a certain value of interest and then repaying your original investment [usually $1,000] after the bond term is up, usually in ten to thirty years.

  Calculate the minimum variance and optimal portfolio

Create a model that will automatically calculate the minimum variance and optimal portfolio as well as be able to draw the efficient frontier for a 3 risky asset portfolio.

  Calculate eco s current cost of preferred stock

Calculate Eco s current after-tax cost of long-term debt, calculate Eco s current cost of preferred stock

  Why do bubbles and bursts occur in financial markets

Why do bubbles and bursts occur in financial markets? In discussing this issue, you need to focus on the rationality of investors, the availability of information to different categories of investors, and the use of historical data in financial d..

  What is the cross rate between francs and pounds

The exchange rate between the US dollar and the Swiss Franc is SF1.3=$1, and the exchange rate betweent he dollar and the British pound is BP1=$1.40. What is the cross rate between francs and pounds.

  Restructuring of operations a solution to operating exposure

Is restructuring of operations a solution to operating exposure-Operating exposure measures any changes in the present value of a firm resulting from changes in future operating cash flows caused by any unexpected change in exchange rates.

  Change in bond price as the market yield changes

What is the Modified Duration of this bond when the market yield is at YTM and explain why and when Modified Duration under-predicts and over-predicts the change in bond price as the market yield changes.

  Should the new lathe be purchased

The firm estimates the revenues and expenses for the new and the old lathes to be as shown in the following table. The firm is subject to a 40% tax rate. Should the new lathe be purchased?

  Provide financial planning advice to the clients

Provide financial planning advice in the case study.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd