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ValentinkaMS [17]
3 years ago
10

Ornaments, Inc., is an all-equity firm with a total market value of $608,000 and 27,300 shares of stock outstanding. Management

believes the earnings before interest and taxes (EBIT) will be $86,600 if the economy is normal. If there is a recession, EBIT will be 25 percent lower, and if there is a boom, EBIT will be 35 percent higher. The tax rate is 35 percent. What is the EPS in a recession
Business
1 answer:
Stels [109]3 years ago
3 0

Answer:

The EPS in recession is $1.546 per share.

Explanation:

The earnings per share or EPS is a function of net income divided by the number of shares outstanding. The earnings per share calculates the dollar return per share that is earned in a year.

Earnings per share = Net Income / No of common shares outstanding

Where, Net Income = EBIT - Interest - Tax

The EBIT in recession will be = 86600 * (1-0.25) = $64950

The company is all equity financed so there is no interest cost.

Net Income in recession will be = 64950 - (64950 * 35%)  =  $42217.5

Thus, EPS in recession = 42217.5 / 27300  =  $1.546 per share

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8 0
3 years ago
What is true about credit scores
Arada [10]
You can make them good by buying things with your credit card for little amounts of money and paying the bill right away!
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8 0
3 years ago
Clarissa want to fund a growing perpetuity that will pay $5000 per year to a local museum starting next year. she wants the annu
Akimi4 [234]

Answer:

Clarissa needs to fund the growing perpetuity by $166666.67

Explanation:

A perpetuity is an investment that will give a future series of infinite payments so if the perpetuity gives you a periodic growth rate then you find the difference between the interest rate and the growth rate then use the perpetuity formula which is:

Pv = C/(i-g)

where Pv is the present value of the perpetuity which will be the initial investment.

C is the periodic payments that will be received in future in this case $5000

i is the interest rate given for the perpetuity which is 8%

g is the growth rate per fixed period which is 5%

thereafter we substitute on the above mentioned formula:

Pv= $5000/(8%-5%) then compute

Pv = $166666.67 which will be the initial investment for Clarissa to be paid $5000 per year until she dies.

 

3 0
3 years ago
Acort Industries owns assets that will have a 75% probability of having a market value of $52 million in one year. There is a 25
abruzzese [7]

Solution :

a). The current market value of the unlevered equity

   $=\frac{75\% \times \$52 \text{ million} + 25\% \times \$22 \text{ million}}{1+10 \%}$

   = $ 40.45 million

b). The market value of the equity one year from now is

  $=(75\% \times \$52 \text{ million} + 25\% \times \$22 \text{ million})- \$18 \ \text{million}$

  = $ 44.5 million - $ 18 million

  = $ 26.5 million

c). The expected return on the equity without the leverage = 10%

     The expected return on the equity with the leverage =   $=10\% +\frac{ \$22 \text{ million}}{\$ 26.5 \text{ million}}$

= 0.93 %

d). The lowest possible value of equity without the leverage = $20 million - $ 18 million

= $ 2 million

The lowest return on the equity without the leverage = 10%

The lowest return on the equity with the leverage = 2 % as the equity is eroded.

8 0
2 years ago
When a consumer has evaluated alternatives in the purchase decision process and selected one, he still must determine from whom
hammer [34]

Answer:

The correct answer is when to buy.

Explanation:

When a consumer has checked all the alternatives and has made the purchase decision of what to buy, he still needs to decide from whom to buy and at what time or when to buy. This is because the price of assets or goods keeps changing with the passage of time. The change in price depends on market situations at that time.

There are a number of factors that affect the price level in the market. For instance,

  1. Income level
  2. Business cycle
  3. Interest rates

Changes in these factors cause a change in the price of goods and services and other assets.

3 0
3 years ago
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