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In 2021, the company plans to raise $500,000 external capital to fund a new project through a term loan with an interest rate of 7%. The new loan's sinking fund provision requires the loan to be fully amortized over the next 5 years, commencing in 2022. The company expects that the existing debt and preferred stock will not be retired until the year 2026; hence, they will remain in the same amount in 2021. If the project goes as planned, the company expects $1,200,000 of EBIT in 2021. The company's tax rate is 40%.
What will the expected earnings per share under the new debt alternative be? Round your answer to two decimal places of dollar, but ignore dollar sign, e.g., x.xx. (Hint: Refer to the EBIT-EPS Analysis example (table) in the long-term financing decisions.)
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- Show the solution in good accounting form. On January 1, 2020, HIBISCUS Company purchased 4,000 of P1,000 face value, 10% bonds of IXORA Company for 24,270,600. The bonds will mature on January 1, 2025 and pay interest semi-annually on January 1 and July 1. Bonds effective interest rate is 8%. HIBISCUS has a business model of collecting all the contractural cash flows related to the instrument. How much should HIBISCUS report as interest income on the bonds in the year 2020?Berea Resources is planning a$75million capital expenditure program for the coming vear. Next year, Berea expects to report to the IR5 earnings of s40 milion after interest and tanes The company presently has 22 milion shares of commoo stock issued and outstanding. Dividend payments are expected to increase from the present level of s8 millon co 512 manion, The company expects its current asset needs to increase from a current level of$22millon to$27malion, Current liabilibes, exduding short-tern bank berrowirgs, are expected to incease from$13million to$18milion. Interest payments are s5 milion next year, and long-term debt retiremert obligations are$6million next year. Deoreciation next year is expectad to be$16million on the company's financial statements, but the company will report depreciation of$19million for tax purposes. How much extemal financing is required by Berea for the coming yean? Enter your answer in malions. For example, an answer of tt milion should be enternd as 1,…PQR Corporation is considering the following alternative plans of financing for raising$4,000,000: The following additional information is available for PQR Corporation: Earnings before bond interest and income taxes (EBIT) are $9,000,000. The tax rate is 35%. All bonds or stocks are issued at their par values. Interest is payable at the end of each year. Required: Which plan should company choose & why (i.e. Explain the rationale behind selecting the plan)? Provide all the detailed calculations.
- Able Company had the following amounts of long-term, debt outstanding at December 31, 2021: 14% term note, due 2022 30,000 11% term note, due 2009 1,070,000 8% note, due in 11 equal annual principal payments, plus interest beginning December 31, 2022 1,100,000 7% guaranteed debentures, due 2010 1,000,000 Total 3,200,000 Able’s annual sinking fund requirement on the guaranteed debentures is P40,000 per year. What amount should Able report as current maturities of long-term debt in its December 31, 2021 balance sheet?A company is planning to raise GHS 2000000 additional long-term funds to finance its additional capital budget of the current year. The debentures of the company to be sold on a 14% net yield basis to the company, and equity shares to be sold at GHS 50 per share net to the company, are the alternative being considered by the company. The company expects to pay dividend of GHS 5 per share at the end of the coming year. The expansion is expected to carry the company into new higher risk class. The required rate of return on equity from the point of view of the investment community is 16%. i.Determine the growth rate of the company, which the market is anticipating.ii.Management is anticipating 8% growth rate. On this basis, at what price should the equity share be sold by the company?iii.Assuming that management is anticipating growth rate of only 4% per year, would you still recommend equity financing?JenBritt Incorporated had a free cash flow (FCF) of $80 million in 2019. The firm projects FCF of $200 million in 2020 and $500 million in 2021. FCF is expected to grow at a con- stant rate of 4% in 2022 and thereafter. The weighted average cost of capital is 9%. What is the current (i.e., beginning of 2020) value of operations?
- Supa Inc. is considering plans A and B for financing their new Systems project of OMR 6 million. Plan A involves issuance of 250,000 shares of common stock at the current market price of OMR 2 per share. Plan B involves issuance of OMR 5 million, 8% bonds at face value. Income before interest and taxes on the new plant will be OMR2.5million. Income taxes are expected to be 20%. Supa, Inc. currently has 100,000 shares of common stock outstanding. Advice Supa Inc. as to which plan would be better and why? (The answer should show clear steps and calculations).Allam’s Corporation had the following figures in 2019: -Interest rate on loan debt is 14% -Tax Rate is 20% -Total liabilities are 2,000,000 -Total assets are 5,000,000 -Risk-free rate of return is 15% -Beta for the company is 1.2 -Average Market return is 25% The company is evaluating two projects; S & N that are expected to generate the following: Year S N 0 (500,000) (500,000) 1 240,000 170,000 2 230,000 200,000 3 190,000 250,000 4 140,000 290,000 Required: Calculate the Weighted Average Cost of Capital Using payback, discounted payback, and net present value techniques, which project would you recommend, if any?Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating income [EBIT(1 – T)] will be $420 million and its 2020 depreciation expense will be $70 million. Barrington's 2020 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2020 will be $30 million. The firm's free cash flow is expected to grow at a constant rate of 5% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 8.8%; the market value of the company's debt is $2.15 billion; and the company has 190 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Also, the firm has zero non-operating assets. Using the corporate valuation model, what should be the company's stock price today (December 31, 2019)? Do not round intermediate calculations. Round your…
- Berea Resources is planning a $75 million capital expenditure program for the coming year. Next year, Berea expects to report to the IRS earnings of $39 million after interest and taxes. The company presently has 21 million shares of common stock issued and outstanding. Dividend payments are expected to increase from the present level of $10 million to $11 million. The company expects its current asset needs to increase from a current level of $30 million to $33 million. Current liabilities, excluding short-term bank borrowings, are expected to increase from $13 million to $18 million. Interest payments are $5 million next year, and long-term debt retirement obligations are $7 million next year. Depreciation next year is expected to be $16 million on the company's financial statements, but the company will report depreciation of $19 million for tax purposes. How much external financing is required by Berea for the coming year? Enter your answer in millions. For example, an answer of $1…A money market instrument purchased by the company with a face value of $300,000 will mature on October 15, 2021. In order to meet the financial obligations of the business, management has decided to liquidate the investment upon maturity. On that date quarterly interest computed at a rate of 5% per annum is also expected to be collected. What is the interest?Top management of Crane company is considering two alternative capital structures for 2027. The first (the "no debt" structure) would be to have $1,020,000 in assets and $1,020,000 in stockholders' equity, with 39,000 shares outstanding the entire year. This is the structure the company had on December 31, 2026. Alternatively, on January 1, 2027, the company could issue $370,000 in debt at 6% interest (the "with debt" structure) and immediately use the proceeds to repurchase 19,500 shares of stock for $390,000. The expected amount of net income (ignoring taxes), prior to any interest costs, is $102,000 for 2027. Assume the company pays dividends on common stock equal to its net income each year. Also, assume the accrued interest on the debt was paid at December 31, 2027, and the company has no other debt outstanding at year-end. Also, assume the company has $1,020,000 in assets at both the beginning and the end of 2027. (a) Your answer is correct. Compute the company's net income and…