the radford company currently has 200,000 shares of common stock outstanding wit
ID: 2650281 • Letter: T
Question
the radford company currently has 200,000 shares of common stock outstanding with a market price of $25 per share it also has 5 million outstanding in 7% 15 year bonds. The company is considering a $2 million expansion program that it can finance with a) all common stock at $25 a share, b) $2 million in bonds at 9% interest, or c) half common stock at $25 a share, and half bonds at 8%. The best estimate available for the company's EBIT after the expansion is .5 probability of $800,000 and .3 probability of $1,000,000 and . 2 probability of $1,250,000. The corporations tax rate is 40%. What is the EPS for plan A, for plan B, and plan C? the radford company currently has 200,000 shares of common stock outstanding with a market price of $25 per share it also has 5 million outstanding in 7% 15 year bonds. The company is considering a $2 million expansion program that it can finance with a) all common stock at $25 a share, b) $2 million in bonds at 9% interest, or c) half common stock at $25 a share, and half bonds at 8%. The best estimate available for the company's EBIT after the expansion is .5 probability of $800,000 and .3 probability of $1,000,000 and . 2 probability of $1,250,000. The corporations tax rate is 40%. What is the EPS for plan A, for plan B, and plan C? the radford company currently has 200,000 shares of common stock outstanding with a market price of $25 per share it also has 5 million outstanding in 7% 15 year bonds. The company is considering a $2 million expansion program that it can finance with a) all common stock at $25 a share, b) $2 million in bonds at 9% interest, or c) half common stock at $25 a share, and half bonds at 8%. The best estimate available for the company's EBIT after the expansion is .5 probability of $800,000 and .3 probability of $1,000,000 and . 2 probability of $1,250,000. The corporations tax rate is 40%. What is the EPS for plan A, for plan B, and plan C?Explanation / Answer
Plan A
Plan C
Plan C
Investment:
Shares
2,000,000.00
0
1,000,000.00
8% Bond
-
2,000,000.00
1,000,000.00
EBIT
at 0.5 probability ($800,000*0.50)
400,000.00
400,000.00
400,000.00
at 0. probability ($1,000,000*0.50)
300,000.00
300,000.00
300,000.00
at 0. probability ($1,250,000*0.50)
250,000.00
250,000.00
250,000.00
Total Expected EBIT
950,000.00
950,000.00
950,000.00
Less: Interest on bond @8%
-
160,000.00
80,000.00
Earnings before Tax (EBT)
950,000.00
790,000.00
870,000.00
Less: Tax @40% on EBT
380,000.00
316,000.00
348,000.00
Net Income
570,000.00
474,000.00
522,000.00
No of Shares currently Held
200,000.00
200,000.00
200,000.00
Proposed increase
80,000.00
-
40,000.00
Total Shares
280,000.00
200,000.00
240,000.00
EPS (Net income/Total Shares)
2.04
2.37
2.18
Plan A
Plan C
Plan C
Investment:
Shares
2,000,000.00
0
1,000,000.00
8% Bond
-
2,000,000.00
1,000,000.00
EBIT
at 0.5 probability ($800,000*0.50)
400,000.00
400,000.00
400,000.00
at 0. probability ($1,000,000*0.50)
300,000.00
300,000.00
300,000.00
at 0. probability ($1,250,000*0.50)
250,000.00
250,000.00
250,000.00
Total Expected EBIT
950,000.00
950,000.00
950,000.00
Less: Interest on bond @8%
-
160,000.00
80,000.00
Earnings before Tax (EBT)
950,000.00
790,000.00
870,000.00
Less: Tax @40% on EBT
380,000.00
316,000.00
348,000.00
Net Income
570,000.00
474,000.00
522,000.00
No of Shares currently Held
200,000.00
200,000.00
200,000.00
Proposed increase
80,000.00
-
40,000.00
Total Shares
280,000.00
200,000.00
240,000.00
EPS (Net income/Total Shares)
2.04
2.37
2.18
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