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Savatey [412]
3 years ago
7

In the following example, the proposed debt issue would raise $4,000,000; the interest rate would be 10%. In addition, the EBIT

would be $2,000,000. What would be the increase in the Earnings Per Share (EPS) from to current to the proposed structure
Business
1 answer:
topjm [15]3 years ago
6 0

Answer:

$1.67

Explanation:

The computation of the increase in earning per share is shown below:

But before that first we need to find out the current and proposed earning

per share

Particulars                       Current                       Proposed

<u>Number of shares        $400,000                    $240,000  (a) </u>

EBIT                                  $2,000,000               $2,000,000

Less:

Interest                                                                $400,000

                                                                   ($4,000,000 ×0.10)

EBT                                   $2,000,000               $1,600,000

Less

Taxes                                $0                               $0

Net income                       $2,000,000              $1,600,000 (b)

EPS                                    $5                              $6.67 (a ÷ b)

Increase in EPS

= $6.67 - $5

= $1.67

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Power Drive Corporation designs and produces a line of golf equipment and golf apparel. Power Drive has 100,000 shares of common
malfutka [58]

Solution:

Power Drive Corporation has the following beginning balances in its stockholders’ equity accounts on January 1, 2012:  

Common Stock, $100,000;  

Additional Paid-in Capital - common stock    $4,830,000;  

Retained Earnings,  $2,520,000.  

March 1 Issues 55,500 additional shares of $1 par value common stock for $67 per share.

Dr Cash 3,718,500

Cr Common stock 55,500

Cr Paid-in Capital 3,663,000

At this point there are 175,500 common shares outstanding

May 10 Repurchases 11,000 shares of treasury stock for $89 per share.

Dr Treasury stock 979,000

Cr Cash 979,000

At this point there are 164,500 common shares outstanding

June 1 Declares a cash dividend of $1.50 per share to all stockholders of record on June 15.  

Dr Cash dividend 246,750 (164,500 x $1.50)

Cr Dividend payable 246,750

July 1 Pays the cash dividend declared on June 1.

Dr Dividend payable 246,750

Cr CAsh 246,750

October 21 Reissues 3,000 shares of treasury stock purchased on May 10 for $95 per share.

Dr Cash 285,000

Cr Treasury stock 267,000 (3,000 x cost of $89)

Cr Additional paid-in capital - treasury stock 18,000

At this point there are 167,500 common shares outstanding   Stockholders' equity

Common stock - 175,500 shares of $1 par issued, 167,500 outstanding $175,500

Additional paid-in capital - common stock $8,493,000

Additional paid-in capital - treasury stock $18,000

retained earnings $2,803,250

less Treasury stock (8,000 shares) $712,000

Stockholders' equity $10,777,750

4 0
2 years ago
A ({bond} or {stock}) will pay income based on an interest rate, while a ({bond) or (stock)} may give dividends to investors. Bo
meriva

Answer:

A<u> </u><u>bond</u> will pay income based on an interest rate, while a <u>stock </u>may give dividends to investors. Both interest income and dividends contribute to the <u>return</u> on an investment.

Explanation:

A bond is a long-term debt tool used by governments and corporations to raise funds. To investors, bonds offer long-term investment opportunities that pay interest based on the prevailing market rates.

A stock is the smallest unit of a company. Owning stock is owning a small portion of the company. Stockholders are entitled to share in the profits of a company; that's why they receive dividends.

An investment is a commercial undertaking that provides the investor with a financial gain. The financial gain or profits may be dividends from shares or interests from deposits.

5 0
2 years ago
A business with a differentiation strategy will add cost to an activity only as long as the activity has a positive margin.
Vladimir [108]
That is not a question it is a statement. However yes, businesses tend to increase the price of an activity the more customers react positively to the activity.
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2 years ago
Lee, Inc. acquired 30% of Polk Corp.'s voting stock on January 1, Year 1 for $100,000. During Year 1, Polk earned $40,000 and pa
KiRa [710]

Answer:

$7,500

Explanation:

Lee, Inc. acquired 30% of Polk Corp.'s voting stock on January 1, Year 1 for $100,000.

During Year 1, Polk earned $40,000 and paid dividends of $25,000.

Therefore Lee's dividend income = 0.3 x 25,000 = $7,500

Before income taxes, the amount that Lee should include in its Year 1 Income Statement as a result of the investment will be the dividend earned in year 1 which is $7,500

5 0
3 years ago
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