Unibloc Inc. currently sells 3.2 million construction set toys per year at a price of $39.95...

Unibloc Inc. currently sells 3.2 million construction set toys per year at a price of $39.95 each. The company has $13.9 million in debt with an average coupon rate of 9% and 15 million shares outstanding, which trade at $59.81. The company's average tax rate is 29%.

The company plans to modernize its production process. The new machines will cost $8.3 million and will reduce the variable cost per unit to $29.96, while increasing fixed costs, including depreciation, to $18.4 million. Sales will be unaffected. They company could raise $8.3 million by borrowing at an interest rate of 9% or by selling more shares at the current stock price.

a) What would be EPS if the investment is financed with debt?

b) What would be EPS if the investment is financed with equity?

c) What number of units sold will lead to the same EPS with debt financing and equity financing (in million)?

Solutions

Expert Solution

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

Unibloc Inc. currently sells 5 million construction set toys per year at a price of $39.95...

Unibloc Inc. currently sells 5 million construction set toys per year at a price of $39.95 each. The company has $13.9 million in debt with an average coupon rate of 6% and 15 million shares outstanding, which trade at $39.04. The company's average tax rate is 29%. The company plans to modernize its production process. The new machines will cost $8.3 million and will reduce the variable cost per unit to $29.96, while increasing fixed costs, including depreciation, to $18.4...

ABC Inc. manufactures and sells toys. Price and cost data are as follows: Selling price per...

ABC Inc. manufactures and sells toys. Price and cost data are as follows: Selling price per unit (package of 2 CDs)...................................... $20.00 Variable costs per unit: Direct material............................................................................................................... $4.00 Direct labor...................................................................................................................... $5.00 Artist's royalties.............................................................................................................. $3.50 Manufacturing overhead.......................................................................................... $3.00 Selling expenses............................................................................................................ $1.00 Total variable costs per unit............................................................ $16.50 Annual fixed costs: Manufacturing overhead.......................................................................................... $180,000 Selling and administrative....................................................................................... $220,000 Total fixed costs................................................................................ $400,000 Forecasted annual sales volume (120,000 units)......................... $2,400,000 If the company's direct-labor costs do increase by 8%, what selling price...

Martin Corp. currently sells 180,000 units per year at a price of $7.00 per unit; its...

Martin Corp. currently sells 180,000 units per year at a price of $7.00 per unit; its variable cost is $4.20 per unit; and fixed costs are $400,000. What is Martin’s operating breakeven point in both a) units and b) dollars (6 points).

xyz inc. currently has 5 million shares outstanding at a market price of 13 per share...

xyz inc. currently has 5 million shares outstanding at a market price of 13 per share . xyz inc declares a 1 for 4 stock dividend. how many shares will be outstanding after the dividend is paid? after the stock dividend what is the new price per share and what is the total market value of the firm?

Examine the following book-value balance sheet for Toys INC. The preferred stock currently sells for $30...

Examine the following book-value balance sheet for Toys INC. The preferred stock currently sells for $30 per share and pays a dividend of $3 a share. The common stock sells for $20 per share and has a beta of 0.6. There are 3 million common shares outstanding. The market risk premium is 9%, the risk-free rate is 5%, and the firm’s tax rate is 40%. BOOK-VALUE BALANCE SHEET (Figures in $ millions) Assets Liabilities and Net Worth Cash and short-term...

Young Corporation stock currently sells for $40 per share. There are 1 million shares currently outstanding....

Young Corporation stock currently sells for $40 per share. There are 1 million shares currently outstanding. The company announces plans to raise $5 million by offering shares to the public at a price of $40 per share. Q: If the under writing spread is 6% and the other administrative costs are $60,000, what is the dollar value of the total direct costs of the issue? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your...

Jansen Inc. currently produces and sells 12,000 units per year with the following cost data: Variable...

Jansen Inc. currently produces and sells 12,000 units per year with the following cost data: Variable costs $10 per unit Fixed costs $30,000 Next year, Jansen plans to increase its advertising budget, which will increase fixed costs by 5%. With increased advertising, the company expects the number of units produced and sold to increase by 8%. What are budgeted total costs expected to be next year?

a coffee shop buys beans 3.2$ per bag, and it sells it for 5.25 $. this...

a coffee shop buys beans 3.2$ per bag, and it sells it for 5.25 $. this coffee shop sales are 21 bag per week. its annual inventory holding cost rate is 25% and it costs this coffee shop 20$ to place an order with the bean supplier. if the bean supplier offers a 7% discount on orders of 400 bags or more and 10% discount for 900 bags or more. A) What is the optimal order quantity for the coffee...

specialty toys, Inc. sells a variety of new and innovativ children’s toys. Management learned that the...

specialty toys, Inc. sells a variety of new and innovativ children’s toys. Management learned that the preholiday season is the best time to introduce a new toy, because many families use this time to look for new ideas for december holiday gifts. When specialty discovers a new with good market potiential, it chooses an October, market entry date. In order to get toys in stores by October, Specialty places one-time orders with its; manufacturers in June or July of eacjh...

Specialty Toys, Inc., sells a variety of new and innovative children’s toys. Management learned that the...

Specialty Toys, Inc., sells a variety of new and innovative children’s toys. Management learned that the preholiday season is the best time to introduce a new toy, because many families use this time to look for new ideas for December holiday gifts. When Specialty discovers a new toy with good market potential, it chooses an October market entry date. In order to get toys in its stores by October, Specialty places one-time orders with its manufacturers in June or July...

Subjects