How would each of these plans affect earnings per share

Reference no: EM13302716

Edsel Research Labs has $24 million in assets. Currently half of these assets are financed with long-term debt at 8 percent and half with common stock having a par value of $10. Ms. Edsel, the 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 8 percent. The tax rate is 40 percent.

Under Plan D, a $6 million long-term bond would be sold at an interest rate of 10 percent and 600,000 shares of stock would be purchased in the market at $10 per share and retired. Under Plan E, 600,000 shares of stock would be sold at $10 per share and the $6,000,000 in proceeds would be used to reduce long-term debt.

How would each of these plans affect earnings per share? (Round your answers to 2 decimal places. Omit the "tiny_mce_markerquot; sign in your response.)

Earnings
per share
Current Plan $
Plan D $
Plan E $

Reference no: EM13302716

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