LexMart maintains a debt-to-equity ratio of 1.0 regardless of whether the firm experiences expansion or contraction. At the present time, LexMart has $1,000 par value bonds outstanding that pay 8% annual interest. The firm also has 2.3 million shares of common stock outstanding that sells for $22 per share. a. Based on LexMart's current annual NOP of $21,500,000 and its corporate tax rate of 25%, what is its EPS? b. If LexMart would like to finance a $64 million expansion while maintaining it's current debt-to-equity ratio of 1.0, how many bonds at $1,000 per bond and shares of stock will it have to sell to pay for the expansion? c. After the expansion, what level of annual NOP will LexMart have to generate to maintain its current level of EPS?

LexMart maintains a debt-to-equity ratio of 1.0 regardless of whether the firm experiences expansion or contraction. At the present time, LexMart has $1,000 par value bonds outstanding that pay 8% annual interest. The firm also has 2.3 million shares of common stock outstanding that sells for $22 per share. a. Based on LexMart's current annual NOP of $21,500,000 and its corporate tax rate of 25%, what is its EPS? b. If LexMart would like to finance a $64 million expansion while maintaining it's current debt-to-equity ratio of 1.0, how many bonds at $1,000 per bond and shares of stock will it have to sell to pay for the expansion? c. After the expansion, what level of annual NOP will LexMart have to generate to maintain its current level of EPS?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 13P

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