1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
skelet666 [1.2K]
3 years ago
14

Use the following information to answer questions 4a.1-4a.5 Gerrell Corp. is comparing two different capital structures. Plan I

would result in 18,000 shares of stock and $95,000 in debt. Plan II would result in 14,000 shares of stock and $190,000 in debt. The interest rate on the debt is 5 percent. Compare both of these plans to an all-equity plan assuming that EBIT will be $90,000. The all-equity plan would result in 22,000 shares of stock outstanding. Assuming that the corporate tax rate is 40 percent, what is the EPS for each of these plans
Business
1 answer:
maxonik [38]3 years ago
5 0

Answer:

Gerrel Corp.

EPS (Earnings per share) = Earnings after Tax/Number of outstanding shares

Plan I:

EBIT =                    $90,000

Interest =                 $4,750 ($95,000 x 5%)

Pre-Tax Income = $85,250

Income Tax Exp.      34,100 ($85,250 x 40%)

After Tax Income  $51,150

EPS = $51,150/18,000 = $2.84 per share

Plan II:

EBIT =                    $90,000

Interest =                 $9,500 ($190,000 x 5%)

Pre-Tax Income = $80,500

Income Tax Exp.     32,200 ($80,500 x 40%)

After Tax Income  $48,300

EPS = $48,300/14,000 = $3.45 per share

Plan III:

EBIT =                    $90,000

Pre-Tax Income = $90,000

Income Tax Exp.     36,000 ($90,000 x 40%)

After Tax Income $54,000

EPS = $54,000/22,000 = $2.45 per share

Explanation:

a) Data and Calculations:

Plan I = 18,000 shares + $95,000 debt

Plan II = 14,000 shares + $190,000 debt

Difference = 4,000 shares + $95,000 debt

Share price = $95,000/4,000 = $23.75

EBIT = $90,000

Interest Rate = 5%

Corporate Tax Rate = 40%

b) Capital Structure:

Plan I: (Equity and Debt)

Shares of 18,000 x $23.75 + $95,000 debt = $522,500 in total capital

Plan II: (Equity and Debt)

Shares of 14,000 x $23.75 + $190,000 debt = $522,500 in total capital

Plan III: (All-equity plan):

Shares of 22,000 x $23.75 = $522,500 in total capital

c) The Earnings per share is the measurement of the Net Income to stockholders divided by the number of outstanding shares.  It gives an idea about the profitability of the entity, especially with regard to the profit made for common stockholders.  The EPS is also one of the metrics used in the calculation of the P/E ratio to indicate whether a company's shares are undervalued or overvalued.

You might be interested in
Blake Mycoskie started a shoe business known as TOMS. As a social entrepreneur, Mr. Mycoskie takes the concept of ______________
Vinil7 [7]

As a social entrepreneur, Mr. Mycoskie takes the concept of corporate social initiative to a new level.

Corporate social initiative is when a corporate company tries to bring social awarenss through their volunteer efforts, bussinesses that benefit soceity and much more. TOMS donates a pair of shoes to a third world country each time a pair is bought. This is a way to help their economies and those living in them by giving back.

6 0
3 years ago
Suppose an Exxon Corporation bond will pay $4,500 ten years from now. If the going interest rate on safe 10-year bonds is 4.25%,
Luda [366]

Answer:

The answer is a. $2,967.92

Explanation:

Calculation of prent value

Present value = p* (1+i)^-10

Present value = $4,500 * (1+0.0425)^-10= <u>$2,967.92</u>

4 0
3 years ago
Taco Loco is unsure whether the amount of beef that their computer thinks is in inventory is correct. What is the range in value
STALIN [3.7K]

Answer:

C: 17.78-30 pounds

6 0
3 years ago
new york city is the most expensive city in the united states for lodging the man hotel room rate is $204 per night . assume the
Novay_Z [31]
64% (225-204)/55 = .38 …. Z table = .35971 (1-.35971) = .64 = 64%. I’m about 90% confident that’s the right answer
6 0
3 years ago
Dave works as a traveling pharmacist. He does not work at one pharmacy but fills in all over the country whenever another pharma
Anon25 [30]

Answer: This is an example of a RPh on the Go.

Explanation: RPh on the Go is a national health protection services company placing druggist and apothecary technicians into apothecary careers crosswise the country.

3 0
3 years ago
Other questions:
  • Paul White, the CFO of Crane Automotive, Inc., is putting together this year's financial statements. He has gathered the followi
    7·1 answer
  • During fiscal year-end 2016, Kohl’s Corporation reports the following (in $ millions): net income of $556, retained earnings at
    10·1 answer
  • Solid Appliances, Inc., is a private, for-profit corporation that (1) was formed for the purpose of manufacturing and distributi
    14·1 answer
  • Who knows what the correct answer is?
    14·1 answer
  • ________________________ diagnose, replace, maintain, identify faults with, and repair electrical wiring and computer-based equi
    10·1 answer
  • [The following information applies to the questions displayed below.] The following information was reported in the December 31,
    11·1 answer
  • The two primary competitive levers that managers can use in order to answer the question of how to compete are.
    15·1 answer
  • Given a constant rate of growth of real gdp, what would cause a fall in real gdp per capita?
    15·1 answer
  • in a management information system, structuring the data component to define what type of data is collected and in what form is
    12·1 answer
  • Second Chance Welding rebuilds spot welders for manufacturers. The following budgeted cost data for 2020 is available for Second
    15·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!