Question

In: Finance

The Tanenbaum Tea Company wants to show the stock market an EPS of $3 per share,...

The Tanenbaum Tea Company wants to show the stock market an EPS of $3 per share, but doesn't expect to be able to improve profitability over what is reflected in the financial plan for next year. The plan is partially reproduced below.

Tanenbaum Tea Company
Financial Projection 20X1
($000)
EBIT $18,750 Debt $13,000
Interest (@12%) 1,560                 Equity 97,000
EBT $17,190                 Capital $110,000
Tax (38%) 6,532                
EAT $10,658                 Number of shares = 3,700,000

Tanenbaum's stock sells at book value.

Will trading equity for debt help the firm achieve its EPS goal?

What debt level will produce the desired EPS? Enter your answer in whole thousands. For example, an answer of $1.2 thousand should be entered as 1.2, not 1200. If there is no answer leave the blank field. Do not round intermediate calculations.
$   thousand

Solutions

Expert Solution

Notes-

1.Higher the debt means lower the EPS and lower the debt means higher the EPS. So in our case our EPS is lower than desired so for Increase the EPS we will reduce Debt.

2.All figures are round of upto two digits.

3.Value of debt is in 000 so actual debt will be 7056416.66

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

The Tanenbaum Tea Company wants to show the stock market an EPS of $3 per share,...
The Tanenbaum Tea Company wants to show the stock market an EPS of $3 per share, but doesn't expect to be able to improve profitability over what is reflected in the financial plan for next year. The plan is partially reproduced below. Tanenbaum Tea Company Financial Projection 20X1 ($000) EBIT $18,250 Debt $12,000 Interest (@12%) 1,440                 Equity 98,000 EBT $16,810                 Capital $110,000 Tax (38%) 6,388                 EAT $10,422                 Number of shares = 3,700,000 Tanenbaum's stock sells at...
3. In the table below you can find the earnings per share (EPS) and dividend per...
3. In the table below you can find the earnings per share (EPS) and dividend per share (DPS) information for General Electric (GE) and General Motors (GM). For each company, please explain whether it is appropriate to use DDM to value the stock. (3 points) Year   Company   EPS($)   DPS ($) 2001   GENERAL ELECTRIC CO   1.38   0.64 2002   GENERAL ELECTRIC CO   1.42   0.72 2003   GENERAL ELECTRIC CO   1.5   0.76 2004   GENERAL ELECTRIC CO   1.62   0.8 2005   GENERAL ELECTRIC CO   1.58   0.88...
Tea Ltd is a public company whose common shares are traded in the stock market. Tea...
Tea Ltd is a public company whose common shares are traded in the stock market. Tea recently issued various financial instruments to the public, as described below. (a) 7% convertible bonds with a face value of $1,000 and maturity date on December 31, 2027. Each bond can be converted into whatever number of Tea’s common shares such that the value of the common shares which the holder receives from conversion is equal to $1,500.    5% convertible, cumulative, redeemable preference...
The earnings per share (EPS) of a company decreased if the additional capital it wanted was obtained by issuing additional shares of stock.
The earnings per share (EPS) of a company decreased if the additional capital it wanted was obtained by issuing additional shares of stock. In at least three well composed paragraphs, please explain how this phenomenon comes about. Please also discuss how this decrease in EPS would affect a company’s decision whether to issue equity (shares of stock) or debt (a bond issue) for raising capital.
A company can create anticipated earnings per share (EPS) growth through leverage and stock repurchases. What...
A company can create anticipated earnings per share (EPS) growth through leverage and stock repurchases. What are 3 other ways a firm can have anticipated earnings per share(EPS) growth without adding value
A company has an EPS of $2.40, a book value per share of $24.24,and a...
A company has an EPS of $2.40, a book value per share of $24.24, and a market/book ratio of 2.1×. What is its P/E ratio? Do not round intermediate calculations. Round your answer to two decimal places.
A company has an EPS of $2.40, a book value per share of $26.40, and a...
A company has an EPS of $2.40, a book value per share of $26.40, and a market/book ratio of 1.3×. What is its P/E ratio? Do not round intermediate calculations. Round your answer to two decimal places. _____ A firm has a profit margin of 5.5% and an equity multiplier of 1.6. Its sales are $260 million, and it has total assets of $78 million. What is its ROE? Do not round intermediate calculations. Round your answer to two decimal...
The current stock price for a company is $37 per share, and there are 3 million...
The current stock price for a company is $37 per share, and there are 3 million shares outstanding. This firm also has 110,000 bonds outstanding, which pay interest semiannually. If these bonds have a coupon interest rate of 7%, 30 years to maturity, a face value of $1,000, and an annual yield to maturity of 8.3%, what is the percent market value of debt for this firm? (Answer to the nearest hundredth of a percent, but do not use a...
explain what earnings per share (EPS). How is EPS calculated and why it is important for...
explain what earnings per share (EPS). How is EPS calculated and why it is important for investors to gauge the value of a share?
EPS(1) = $6 Dividends per share (1) =0 Book Value per share (0) =$12 Company XYZ...
EPS(1) = $6 Dividends per share (1) =0 Book Value per share (0) =$12 Company XYZ does not plan to pay any dividends in years 1, 2 ,or 3. It will set dividends equal to its earnings. Assume that the ROE will stay constant over time. The opportunity cost of capital is 20%. How much is Company ABC worth per share?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT