As the Financial vice president for Bear Enterprises, you have the following inf
ID: 2501276 • Letter: A
Question
As the Financial vice president for Bear Enterprises, you have the following information:
Expected net income after tax next year before new financing : $60,000,000
Sinking Fund payments due next year on existing debt: $20,000,000
Interest due next year on existing debt $18,000,000
Company Tax rate 25%
Common Stock Price, per share $17
Common Shares outstanding: 22,000,000
Calculate Bear's Earnings Per Share for next year assuming the firm raises $60 Million of new debt at an interest rate of 9 percent
a. $2.54 b. $22.54 c. $1.69 d. $16.95
I have narrowed it down to A or C.
Do you take 60m*.09 = 5,400,000
60,000,000 - 5,400,000 - 18,000,000 = 36,600,000
36,000,000/22,000,000 shares = $1.66 so answer would be C?
Explanation / Answer
Answer: a $2.54
Earning After Tax before new Financing 60000000 Earning Before Tax before new Financing: 6000000/(1-0.25) 80000000 Less: Interest New Financing: (60000000*0.09) -5400000 Earning Before Tax 74600000 Less: Tax @25% (74600000*0.25) -18650000 Earnings Available for Equity Share Holders 55950000 Common Shares Outstanding 22000000 Earning Per Share 2.54Related Questions
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