1. Teller Pen is engaged in the manufacture of mechanical pens and pencils, poro
ID: 2710326 • Letter: 1
Question
1. Teller Pen is engaged in the manufacture of mechanical pens and pencils, porous pens, and a recently developed line of disposable lighters. Since the firm sells to a great many distributors, and its products are all considered nondurable consumer goods, sales are relatively stable. The current price of the company's stock, which is listed on the New York Stock Exchange, is $25. The most re cent earnings and dividends per share are $3.10 and $1.50, respectively. The rate of growth in sales, earnings, and dividends in the past few years has averaged 5 percent. Teller Pen has total as sets of $400 million. Current liabilities, which consist primarily of accounts payable and accruals, are $28 million; long-term debt is $83 million; and common equity totals $289 million. An additional $33 million of external funds is required to build and equip a new disposable-lighter manufacturing complex in central Ohio and to supply the new facility with working capital.Explanation / Answer
1)
Total Assets=$400 mn
Liabilities:
Current liabilities= $28 mn
Long term debt=$83mn
Common Equity=$289 mn
Debt /Assets
=(28+83)/400
=0.2775
If new funds of $33 mn raised through debt the ratio will increase by
=(28+83+33)/433
=0.33
If new funds of $33 mn raised through debt the ratio will increase by
=(28+83)/433
=0.256
Since the company is not having much debt and it is able to pay dividends aswell then than going for common stock which will dilute the shareholders rights, it is better to raise the funds through longterm debt
The company is distributor so they will collect the money upfront which wil increase the cash flow position and it is important for paying interest.
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