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horrorfan [7]
3 years ago
7

is an unlevered firm with a total market value of $3,900,000 with 60,000 shares of stock outstanding. The firm has expected EBIT

of $220,000 if the economy is normal and $280,000 if the economy booms. The firm is considering a $975,000 bond issue with an attached interest rate of 6 percent. The bond proceeds will be used to repurchase shares. Ignore taxes. What will the earnings per share be after the repurchase if the economy booms
Business
1 answer:
Korvikt [17]3 years ago
5 0

Answer:

Earnings per share= $3.58

Explanation:

Earnings per share(EPS) = Earnings attributable to share/Number of shares

Price per share = $3,900,000/60,000=$65 per share

The units of shares to be re-purchased with debt proceed

= The proceeds from debt/share price

=$975,000/$65= 15,000

The number of shares outstanding after repurchased = 60,000-15,000= 45,000 units

EBIT                                                     220,000

Less interest (6%×975,000)                <u> (58,500)</u>

Earnings attributable to shares           <u>    151,500</u>

Earnings per share                                151,500/45,000 units=$3.58

Earnings per share= $3.58

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3 years ago
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katrin2010 [14]

Answer:

The flexible budget would show fixed costs of $16,000

Explanation:

Meaning of Fixed cost: The fixed cost is that cost which is not have any impact on production level. It means that if the production level is increase or decrease, the fixed cost remain constant.

In the question the following information is given ,

Expected volume - 8,000 units

Per unit Revenue -  $ 4.00

Variable costs [per unit - 1.50

Contribution margin per unit -  $ 2.50

Fixed costs per unit - 2.00

Net income per unit -  $ 0.50

Actual production - 10,000 units

For computing the fixed cost under flexible budget for actual production which produces 10,000 units. The fixed cost remain same.

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Scorpion4ik [409]

Answer:

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Issue common stock           Increase               NE                      Increase

Issue preferred stock         Increase               NE                      Increase  Purchase treasury stock     Decrease             NE                       Decrease

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