Question
In: Finance
North Side has no debt and a market value of $175,000. EBIT projects to be $16,000...
North Side has no debt and a market value of $175,000. EBIT projects to be $16,000 under normal economic conditions. In a strong economic expansion, EBIT will be 30% higher. The company is considering a $70,000 debt issue with a 7% interest rate to repurchase stock. There are currently 2,500 shares outstanding, and the tax rate is 34%. What will the percentage change in EPS be if the economy has a strong expansion?
ANSWER IS 43.24% please show explanation and work to get to this answer. Thank you!
Solutions
Expert Solution
| Normal | Expansion | |
| EBIT | 16,000 | 20,800 |
| Less: Interest | 4,900 | 4,900 |
| Income before tax | 11,100 | 15,900 |
| Less: Taxes | 3,774 | 5,406 |
| Net Income | 7,326 | 10,494 |
| Number of shares | 1,500 | 1,500 |
| EPS | 4.88 | 7.00 |
| % change = (7-4.88)/4.88 | 43.24% | |
| Value per share = 175000/2500 = $70 | ||
| Number of shares repurchased = 70000/70 = 1000 shares | ||
Hence, the answer is 43.24%
jeff jeffy answered 2 years agoRelated Solutions
North Side has no debt and a market value of $175,000. EBIT projects to be $16,000...
North Side has no debt and a market value of $175,000. EBIT
projects to be $16,000 under normal economic conditions. In a
strong economic expansion, EBIT will be 30% higher. The company is
considering a $70,000 debt issue with a 7% interest rate to
repurchase stock. There are currently 2,500 shares outstanding, and
the tax rate is 34%. What will the percentage change in EPS be if
the economy has a strong expansion?
** no excel please! please show all...
ebit and leverage ghost inc., has no debt oustanding and a total market value of $185,000...
ebit and leverage ghost inc., has no debt oustanding and a total
market value of $185,000 Earnings before interest and taxes, EBIT
are projected to be $29000 if economic conditions are normal. If
there is strong expansion in the economy, then EBIT will be 30
percent higher. If there is a recession , then EBIT will be 40
percent lower. The company is considering a $65000 debt issue with
an interest rate of 7 percent. The proceeds will be used...
Control Inc., has no debt outstanding and a total market value of $100,000. EBIT is projected...
Control Inc., has no debt outstanding and a total market value
of $100,000. EBIT is projected to be $6,000 if economic conditions
are normal. If there is a strong expansion in the economy, then
EBIT will be 30% higher. If there is a recession, then EBIT will be
60% lower. The firm is considering a $40,000 debt issue with 5%
interest rate. The proceeds will be used to repurchase shares of
stock. There are currently 2,500 shares outstanding. Ignore taxes...
Control Inc., has no debt outstanding and a total market value of $100,000. EBIT is projected...
Control Inc., has no debt outstanding and a total market value
of $100,000. EBIT is projected to be $6,000 if economic conditions
are normal. If there is a strong expansion in the economy, then
EBIT will be 30% higher. If there is a recession, then EBIT will be
60% lower. The firm is considering a $40,000 debt issue with 5%
interest rate. The proceeds will be used to repurchase shares of
stock. There are currently 2,500 shares outstanding. Ignore taxes...
A particular company has no debt outstanding, total assets of $8,000,000 (book value=market value), EBIT of...
A particular company has no debt outstanding, total assets of
$8,000,000 (book value=market value), EBIT of $1,600,000, and a
cost of equity of 14%. The price of the company’s stock is $20 per
share, the number of shares outstanding is 400,000, and the tax
rate for the company is 40%. In an adjustment to its capital
structure, the company is considering selling bonds and
simultaneously repurchasing some of its stock. If the company moves
to a capital structure with 40%...
Antwan rents an apartment that has a fair market value of $175,000.
Antwan rents an apartment that has a fair market value of
$175,000. He also owns a car worth $25,000, furniture worth
$10,000, clothing with a $3,000 replacement value, and about $5,000
of other personal belongings. When deciding on a renter’s insurance
policy, which of the following policy maximums is most
appropriate?A : $18,000.B : $43,000.C : $218,000.D : $15,000.
A company has a market value of equity of $465,710, and a market value of debt...
A company has a market value of equity of $465,710, and a market
value of debt of $391,540. The company's levered cash flow (i.e.
cash flow after paying all interest) is $75,795 and is distributed
annually as dividends in full. The interest rate on the debt is
9.22%. You own $59,230 worth of the market value of the company's
equity. Assume that the cash flow is constant in perpetuity, there
are no taxes, and you can borrow at the same...
A company has a market value of equity of $465,710, and a market value of debt...
A company has a market value of equity of $465,710, and a market
value of debt of $391,540. The company's levered cash flow (i.e.
cash flow after paying all interest) is $75,795 and is distributed
annually as dividends in full. The interest rate on the debt is
9.22%. You own $59,230 worth of the market value of the company's
equity. Assume that the cash flow is constant in perpetuity, there
are no taxes, and you can borrow at the same...
NC has a value of $300M. Debt has a market value of $180M and a yield...
NC
has a value of $300M. Debt has a market value of $180M and a yield
of 8%. Equity has a beta of 1.60. The risk-free return is 4% and
the market risk premium is 10%. Tax rate is 40%. Find the weighted
average cost of capital.
Problem 10 A firm has market value of equity of $10M and market value of debt...
Problem 10
A firm has market value of equity of $10M and market value of
debt of $10M. Yield to maturity of its debt is 10%, while the
expected return of its stock is 20%. Assume that the tax rate is
0%. The WACC is given by:
A) 8%
B) 12%
C) 15%
D) 18%
E) 21%
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Due to a recession, expected inflation this year is only 4.75%. However, the inflation rate in...
- What are the benefits of doing a pilot program before a full scale rollout of a...
- It is a calm summer day in southeast Iowa at the Ottumwa air traffic control radar...
- 1. Write a detailed article on Evolution of attacks on the internet & web [your article...
- Analyze the role of the contingency plan coordinator (CPC) in the scope of preparing a BIA....
- Amazing Manufacturing, Inc., has been considering the purchase of a new manufacturing facility for $500,000. The...
- LANGUAGE: JAVA Create a New Project called YourLastNameDomainName. Write a DomainName class that encapsulates the concept...
ADVERTISEMENT