Your corporation is currently​ all-equity financed with 400,000 shares of common stock selling for ​$37 a share. Currently your firm generates $3,000,000 in EBIT annually and has a 32​% dividend payout ratio. Your​ firm's tax rate is 35​%.   a. What is your​ firm's current earnings per share and dividend per​ share? b. Your firm is considering financing an expansion with a bond issue of ​$8,500,000 that will pay 5.7​% annually in interest. If the expansion increases your​ firm's EBIT to $5,500,000​, what will be your​ firm's new​ debt-to-equity ratio,​ EPS, and dividend per share? c. If the expansion is instead financed with an issue of new​ stock, what will be your​ firm's new EPS and dividend per​ share?   a. Calculate the​ firm's current earnings per share​ (EPS) and dividend per share​ (DPS) below:  ​(Round to the nearest dollar except for the EPS and DPS which should be rounded to the nearest​ cent.)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Your corporation is currently​ all-equity financed with 400,000
shares of common stock selling for ​$37 a share. Currently your firm generates $3,000,000 in EBIT annually and has a 32​% dividend payout ratio. Your​ firm's tax rate is 35​%.
 
a. What is your​ firm's current earnings per share and dividend per​ share?
b. Your firm is considering financing an expansion with a bond issue of ​$8,500,000
that will pay 5.7​% annually in interest. If the expansion increases your​ firm's EBIT to $5,500,000​, what will be your​ firm's new​ debt-to-equity ratio,​ EPS, and dividend per share?
c. If the expansion is instead financed with an issue of new​ stock, what will be your​ firm's new EPS and dividend per​ share?
 
a. Calculate the​ firm's current earnings per share​ (EPS) and dividend per share​ (DPS) below:  ​(Round to the nearest dollar except for the EPS and DPS which should be rounded to the nearest​ cent.)
 
EBIT
$
?
 
Less: Interest expense
 
?
 
Net profits before taxes
$
?
 
Less: Taxes (35%)
 
?
 
Net income
$
?
 
       
Earnings per share (EPS) of common stock
$
?
 
Common stock dividends
$
?
 
Common stock dividend per share (DPS)
$
?
 
Common stock shares outstanding
 
400,000
 
Stock price
$
37
 

 

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