Dickinson Company has $11,980,000 million in assets. Currently half of these assets are financed with long-term debt at 9.9 percentand half with common stock having a par value of $8. Ms. Park, Vice President of Finance, wishes to analyze two refinancing plans,one with more debt (D) and one with more equity (E). The company earns a return on assets before Interest and taxes of 9.9 percent.The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable.Under Plan D, a $2,995,000 million long-term bond would be sold at an Interest rate of 11.9 percent and 374,375 shares of stock wouldbe purchased in the market at $8 per share and retired.Under Plan E, 374,375 shares of stock would be sold at $8 per share and the $2,995,000 in proceeds would be used to reduce long-term debt.a. Compute earnings per share considering the current plan and the two new plans.Note: Round your answers to 2 decimal places.Earnings per shareEarnings per shareO Plan DO Plan EO Current PlanEarnings per share✓ Answer is complete and correct.CurrentPlanb-1. Compute the earnings per share if return on assets fell to 4.95 percent.Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Leave no cells blank becertain to enter O wherever required.SO Plan DO Current PlanO Plan E0.48 SEarnings per shareCurrent Planb-2. Which plan would be most favorable if return on assets fell to 4.95 percent? Consider the current plan and the two new plans.Plan DO Plan EO Current PlanPlan D0.38 Sb-3. Compute the earnings per share if return on assets Increased to 14.9 percent.Note: Round your answers to 2 decimal places.Current PlanPlan DPlan ECurrent Plan0.48✔Plan Db-4. Which plan would be most favorable if return on assets Increased to 14.9 percent? Consider the current plan and the two newplans.Plan Ec-1. If the market price for common stock rose to $10 before the restructuring, compute the earnings per share. Continue to assumethat $2,995,000 million in debt will be used to retire stock In Plan D and $2,995,000 million of new equity will be sold to retire debt inPlan E. Also assume that return on assets is 9.9 percent.Note: Round your answers to 2 decimal places.Plan DPlan EPlan Ec-2. If the market price for common stock rose to $10 before the restructuring, which plan would then be most attractive?

Capital structure refers to the mix of long-term financing sources a company uses to operate and…

Answered: Dickinson Company has $11,980,000…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 7P

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