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Frankie and Johnny’s Cafe is an all-equity firm with $650,000 in equity. Their daughter, Cricket, just got finished taking BA3500. Cricket suggested to her mom and dad that they change the capital structure by taking on some debt and buying back some of their own shares. Frankie and Johnny said that they would consider a loan of $400,000 if Cricket could show them that it was good for the company.
Cricket collected the following data:
Expected EBIT for next year 300,000 Price per share $40
Loan interest rate 10% # of shares outstanding 16,250
Tax rate 35%
What is earnings per share under the current structure? ____________
What would earnings per share be under the proposed structure? ____________
Should Frankie and Johnny do the restructuring? ______________
The Starr Co. just paid a dividend of $1.90 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year, indefinitely. Investors require a return of 10 percent on the stock. What is the current price? What will..
Tanghshan Mining has 100,000 shares outstanding and just declared a 3 for 2 stock split. Before the announcement, the firm's shares were trading at $50.00 per share. After the stock divided, the firm's shares should trade at ________ per share.
A firm has 20 million shares outstanding with a market price of $20 per share. The firm has $10 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has no other financial investments or any debt. What i..
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Process costing Problem Spectre Chemicals produces Zaloff in a two department process. Information on the two departments for March and April, 2011 are as follows: March 2011: Compute the Equivalent Units of Production, Material costs, and Conversion..
Krisle and Kringle's debt-to-total assets ratio is 0.445 (i.e., debt ratio = 44.5%). What is the company’s debt- to-equity ratio? (Enter answer as a ratio rounded to 2 decimal places – that is, do not convert to a percent; for example, enter 80/35 = ..
ABC Inc. issued nine-year, 9 percent semi-annual coupon bonds at par. Today, the bonds are priced at $990. What is the firm’s after-tax cost of debt if the tax rate is 40%?
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