Dickinson Company has $12 million in assets. Currently half of these assets are financed with long-term debt at 10 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 10 percent. The tax rate is 45 percent. Under Plan D, a $3 million long-term bond would be sold at an interest rate of 12 percent and 375,000 shares of stock would be purchased in the market at $8 per share and retired. Under Plan E, 375,000 shares of stock would be sold at $8 per share and the $3,000,000 in proceeds would 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.
b. Which plan would be most favorable if return on assets fell to 5 percent? Increased to 15 percent? Consider the current plan and the two new plans.
c. If the market price for common stock rose to $12 before the restructuring, which plan would then be most attractive? Continue to assume that $3 million in debt will be used to retire stock in Plan D and $3 million of new equity will be sold to retire debt in Plan E. Also assume for calculations in part c that return on assets is 10 percent.
Imagine that you own a firm that operates in a perfectly competitive industry. What will happen to the market price in your industry if you decide to tripl...Dec 09 2019
What reforms to the financial system might reduce its exposure to systemic risk? (LO 1-6)Examine the balance sheet of commercial banks in Table 1.3. What is the ratio of ...Jun 18 2020
Axis Corp. is considering investment in the best of two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $45,000 and ...Jun 03 2021
Stand-alone revenue allocation. Magic Systems, Inc., sells computer hardware to end consumers. The CX30 is sold as a “bundle,” which includes three hardware products: a p...Jul 16 2020
____________ is an unexplained shift in the consumer demand curves for various products and services.Jun 04 2021
Formulate mesh-current equations for the circuit in Figure P3−15. Arrange the results in matrix form Ax = b.(b) Solve for iA and iB(c) Use these results to find vx and ixJun 15 2020
RELIABILITYJack McP hee, a production supervisor for McCormick, Inc., is committed to the company"s new quality efforts. Part of the program encourages making product com...Aug 05 2020
Elaine wants to buy and operate an ice cream truck but does not have the financial resources to start the business. She borrows $10,000 from her friend George to whom she...May 09 2021
curvatul where at the angular Tv nergy Page 11 of 12 QA3 A brass sleeve S is fitted over a steel bolt B (See Fig QA3) and mitted over a steel bolt B (See Fig OA) and the ...Aug 20 2020
Fifty-four players (including Gabe Kaplan and James Garner) participated in the 1980 World Series of Poker. Each player began with $10,000. Play continued until one playe...Aug 05 2020