has $12,120,000 million in assets. Currently half of these assets are financed with long- at 10.6 percent and half with common stock having a par value of $8. Ms. Smith, Vice President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a before interest and taxes of 10.6 percent. The tax rate is 45 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable. Under Plan D, a $3,030,000 million long-term bond would be sold at an of 12.6 percent and 378,750 would be purchased in the market at $8 per share and retired. Under Plan E, 378,750 shares of stock would be sold at $8 per share and the $3,030,000 in would be used to reduce long-term . How would each of these plans affect ? Consider the current plan and the two new plan
s. Compute the earnings per share if return on fell to 5.30 percent. Which plan would be most favorable if return on assets fell to 5.30 percent? Consider the current plan and the two new plans. Compute the earnings per share if return on assets increased to 15.6 percent. Which plan would be most favorable if return on assets increased to 15.6 percent? Consider the current plan and the two new plans. If the for common stock rose to $12 before the restructuring, compute the earnings per share. Continue to assume that $3,030,000 million in debt will be used to retire stock in Plan D and $3,030,000 million of will be sold to retire debt in Plan E. Also assume that return on assets is 10.6 percent. If the market price for common stock rose to $12 before the restructuring, which plan would then be most attractive?