Answer:
a. If Quisco develops the product in house, its earnings would fall by $500 × (1 – 35%) = $325 million. With no change to the number of shares outstanding, its EPS would decrease by to $0.75. (Assume the new product would not change this year’s revenues.)
b. If Quisco acquires the technology for $900 million worth of its stock, it will issue $900 / 18 = 50 million new shares. Since earnings without this transaction are $0.80 × 6.5 billion = $5.2 billion, its EPS with the purchase is .
c. Acquiring the technology would have a smaller impact on earnings. But this method is not cheaper. Developing it in house is less costly and provides an immediate tax benefit. The earnings impact is not a good measure of the expense. In addition, note that because the acquisition permanently increases the number of shares outstanding, it will reduce Quisco’s earnings per share in future years as well.
Explanation:
a. If Quisco develops the product in house, its earnings would fall by $500 × (1 – 35%) = $325 million. With no change to the number of shares outstanding, its EPS would decrease by to $0.75. (Assume the new product would not change this year’s revenues.)
b. If Quisco acquires the technology for $900 million worth of its stock, it will issue $900 / 18 = 50 million new shares. Since earnings without this transaction are $0.80 × 6.5 billion = $5.2 billion, its EPS with the purchase is .
c. Acquiring the technology would have a smaller impact on earnings. But this method is not cheaper. Developing it in house is less costly and provides an immediate tax benefit. The earnings impact is not a good measure of the expense. In addition, note that because the acquisition permanently increases the number of shares outstanding, it will reduce Quisco’s earnings per share in future years as well.
Answer:
Effect on income= $6,000 increase
Explanation:
<u>Because there is an unused capacity and it is a special order, we will not take into account the fixed costs.</u>
Effect on income= total contribution margin
Unitary variable cost= 8 + 10 + 4= $22
Effect on income= 1,000*(28 - 22)
Effect on income= $6,000 increase
Answer: C. Your grandmother gives you $13,00 toward college
Answer:
EPS will be higher than $2.38
Explanation:
The Earnings per share is the value available to stockholders of the company after the deduction of all the expense and taxes. Restructuring expense are one time expense and they are reported as other operating expenses in the Income Statement. The inclusion of restructuring and other one-time charges in the Income Statement results in lower Earnings before Tax and ultimately reduced net profit. If these cost are excluded the Earning will rise which will give rise to EPS of the company.
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