A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to leveraged capital structure. The proposal is for Focus to sell $47,000,000 worth of long-term debt at an interest rate of 6.5% and then repurchase as many shares as possible at a price of $28 per share. Focus currently has 4,800,000 shares outstanding and expects EBIT to be $27,000,000per year in perpetuity. Ignoring taxes, calculate the following: a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization. b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures. c. The EBIT where EPS is the same for both capital structures. d. The EBIT where EPS is zero for both capital structures a) The number of shares outstanding for Focus if adopts the proposed recapitalization is _3,121,429_ shares. (round to the nearest whole number) The per-share price for Focus if it adopts the proposed recapitalization is $_28_. (round to the nearest dollar) The debt-to-equity ratio for Focus if it adopts the proposed recapitalization is _0.54_ (round to two decimal places.) b) The earnings per share (EPS) for Focus under the current capital structure is $? (round to the nearest cent.) The earnings per share (EPS) for focus under the proposed capital structure is $_?_ (round to the nearest cent). The return on equity (ROE) for Focus under the current capital structure is _?_% (round to two decimal places.) The return on equity (ROE) for Focus under the proposed capital structure is _?_% (round to two decimal places.) c) The EBIT where EPS is the same for both capital structures is $__?__. (round to the nearest dollar.) d) The EBIT where EPS is zero for both capital structures is $__?__. (round to the nearest dollar.)
A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to leveraged capital structure. The proposal is for Focus to sell $47,000,000 worth of long-term debt at an interest rate of 6.5% and then repurchase as many shares as possible at a price of $28 per share. Focus currently has 4,800,000 shares outstanding and expects EBIT to be $27,000,000per year in perpetuity. Ignoring taxes, calculate the following: a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization. b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures. c. The EBIT where EPS is the same for both capital structures. d. The EBIT where EPS is zero for both capital structures a) The number of shares outstanding for Focus if adopts the proposed recapitalization is _3,121,429_ shares. (round to the nearest whole number) The per-share price for Focus if it adopts the proposed recapitalization is $_28_. (round to the nearest dollar) The debt-to-equity ratio for Focus if it adopts the proposed recapitalization is _0.54_ (round to two decimal places.) b) The earnings per share (EPS) for Focus under the current capital structure is $? (round to the nearest cent.) The earnings per share (EPS) for focus under the proposed capital structure is $_?_ (round to the nearest cent). The return on equity (ROE) for Focus under the current capital structure is _?_% (round to two decimal places.) The return on equity (ROE) for Focus under the proposed capital structure is _?_% (round to two decimal places.) c) The EBIT where EPS is the same for both capital structures is $__?__. (round to the nearest dollar.) d) The EBIT where EPS is zero for both capital structures is $__?__. (round to the nearest dollar.)
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 4P
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A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to leveraged capital structure. The proposal is for Focus to sell $47,000,000 worth of long-term debt at an interest rate of 6.5% and then repurchase as many shares as possible at a price of $28 per share. Focus currently has 4,800,000 shares outstanding and expects EBIT to be $27,000,000per year in perpetuity. Ignoring taxes, calculate the following:
a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization.
b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures.
c. The EBIT where EPS is the same for both capital structures.
d. The EBIT where EPS is zero for both capital structures
a) The number of shares outstanding for Focus if adopts the proposed recapitalization is _3,121,429_ shares. (round to the nearest whole number)
The per-share price for Focus if it adopts the proposed recapitalization is $_28_. (round to the nearest dollar)
The debt-to-equity ratio for Focus if it adopts the proposed recapitalization is _0.54_ (round to two decimal places.)
b) The earnings per share (EPS) for Focus under the current capital structure is $? (round to the nearest cent.)
The earnings per share (EPS) for focus under the proposed capital structure is $_?_ (round to the nearest cent).
The return on equity (ROE) for Focus under the current capital structure is _?_% (round to two decimal places.)
The return on equity (ROE) for Focus under the proposed capital structure is _?_% (round to two decimal places.)
c) The EBIT where EPS is the same for both capital structures is $__?__. (round to the nearest dollar.)
d) The EBIT where EPS is zero for both capital structures is $__?__. (round to the nearest dollar.)
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