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BARSIC [14]
3 years ago
13

Consider a firm with an EBIT of $559,000. The firm finances its assets with $1,090,000 debt (costing 6.4 percent) and 209,000 sh

ares of stock selling at $15.00 per share. The firm is considering increasing its debt by $900,000, using the proceeds to buy back 84,000 shares of stock. The firm is in the 35 percent tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $559,000. Calculate the EPS before AND after the change in capital structure and indicate changes in EPS. (Round your answers to 4 decimal places.) EPS before $ EPS after $ Difference $
Business
1 answer:
Stells [14]3 years ago
3 0

Answer:

EPS before change in capital structure = $2.34

EPS after change in capital structure       $3.45

Difference in EPS caused by the change ($1.11)

Explanation:

a) Data and Calculations:

EBIT = $559,000

6.4% Debts = $1,090,000

Common stock = 209,000 shares at $15 per share

EPS before increasing debt:

EBIT = $559,000

Interest  (69,760) (6.4% of $1,090,000)

Net income = $489,240

EPS = $489,240/209,000 = $2.34 per share

EPS after increasing debt:

New debt = $1,990,000 ($1,090,000 + $900,000)

New equity shares = 125,000 shares (209,000 - 84,000)

EBIT = $559,000

Interest (127,360) (6.4% of $1,990,000)

Net income = $431,640

EPS = $431,640/125,000 = $3.45 per share

EPS before change in capital structure = $2.34

EPS after change in capital structure       $3.45

Difference in EPS caused by the change ($1.11)

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ValentinkaMS [17]

Answer:

$48,100

Explanation:

Computation of total manufacturing cost incurred during the year is seen below;

Direct materials used

$13,700

Direct labor used

$27,700

Total factory overhead

$6,700

Total manufacturing cost incurred

$48,100

Therefore, the total manufacturing cost incurred during the year is $48,100

6 0
3 years ago
Your father is about to retire, and he wants to buy an annuity that will provide him with $91,000 of income a year for 25 years,
Elena L [17]

Answer:

Present Value of Annuity is $1,263,487

Explanation:

A fix Payment for a specified period of time is called annuity. The discounting of these payment on a specified rate is known as present value of annuity.

Formula for Present value of annuity is as follow

PV of annuity = P x [ ( 1- ( 1+ r )^-n ) / r ]

Where

P = Annual payment = $91,000

r = rate of return = 5.15%

n = number of years = 25 years

PV of annuity = $91,000 x [ ( 1- ( 1+ 0.0515 )^-25 ) / 0.0515 ]

PV of Annuity = $1,263,487

4 0
3 years ago
At Halsted Medical Products Corp., all assembly workers must wear specialized gear to prevent possible injuries from minute part
Pavlova-9 [17]

Answer:

b. Feedforward control

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3 years ago
Which of the following would be most likely to increase your opportunity cost of attending college? a recession in the economy t
kipiarov [429]

Answer:

To start a job today that would permit you to earn about 50 percent more than you expected to make after graduation.

Explanation:

Opportunity cost is the cost of best next option foregone for choosing the current option. Here, the best opportunity foregone is of earning and starting the job today which will allow to earn 50 % more than what can be earned after completing the graduation, as already for graduation fees will be paid, along with further expenses. In that case if dropping graduation and starting a job was this beneficial then it would have been better.

Therefore the following has increased the opportunity cost of pursuing graduation.

to start a job today that would permit you to earn about 50 percent more than you expected to make after graduation

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3 years ago
The break-even quanity for a certain kitchen appliance is 6000 units. The selling price is $10 per unit, and the variable cost i
Alinara [238K]

Answer:

The correct answer is $36,000.

Explanation:

According to the scenario, the given data are as follows:

Break even quantity = 6000 units

Selling price = $10 / unit

So, Sales cost = 6,000 × $10 = $60,000

Variable cost = $4 / unit

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So, we can calculate the fixed cost by using following method:

Fixed cost = Sales cost - Variable cost

By putting the value,

Fixed cost = $60,000 - $24,000

= $36,000.

Hence, the fixed cost is $36,000.

3 0
3 years ago
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