Compute the earnings per share

Assignment Help Finance Basics

Reference no: EM13262296

Dickinson Company has $11,820,000 million in assets. Currently half of these assets are financed with long-term debt at 9.1 percent and half with common stock having a par value of $8. Ms. Smith, Vice-President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 9.1 percent. The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable.

Under Plan D, a $2,955,000 million long-term bond would be sold at an interest rate of 11.1 percent and 369,375 shares of stock would be purchased in the market at $8 per share and retired.

Under Plan E, 369,375 shares of stock would be sold at $8 per share and the $2,955,000 in proceedswould be used to reduce long-term debt.

a.How would each of these plans affect earnings per share? Consider the current plan and the two new plans. (Round your answers to 2 decimal places.)

b- Compute the earnings per share if return on assets fell to 4.55 percent. (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)

Reference no: EM13262296

Questions Cloud

What is american eagle outfitters dividend yield : American Eagles Outfitters (ticker: AEO) recently paid a quarterly dividend of $0.125. It's current share price is $12.73. What is American Eagle Outfitters' dividend yield rounded up to the nearest percent?

How a gaseous fuel mixture stored : A gaseous fuel mixture stored at 752 mmHg and 298 K contains only methane and propane . When 11.6L of this fuel mixture is burned, it produces 767kJ of heat.

What will be the effect of the price increase on the firm : Management anticipates an increased working capital need of $3,000 for the year. What will be the effect of the price increase on the firm's FCF for the year?

Explain the various strategies for the excretion : Describe the various strategies for the excretion of nitrogenous wastes employed in higher animals (chordates), both human and non-human

Compute the earnings per share : Under Plan D, a $2,955,000 million long-term bond would be sold at an interest rate of 11.1 percent and 369,375 shares of stock would be purchased in the market at $8 per share and retired.

Explain how would the process of photosynthesis be affected : How would the process of photosynthesis be affected, and in what steps, if light, CO2 concentration, and/or temperature were altered during photosynthesis

What is the resultant amplitude : Two waves of the same frequency have amplitudes 1.31 and 2.94. What is the resultant amplitude

Scrutinize how lipid metabolism is affected : With Niemann-Pick Disease, discuss how lipid metabolism is affected, particularly which enzyme(s), and how the body is affected

Topic for rhetorical analysis : Scalia argues that a justice who finds the death penalty immoral should resign from the bench (paragraph 8). Do you agree or disagree?

User Account

All Pages