Zheng
Sen's chinese take out had earnings before interest and taxes of 4,000,000 last
year. The firm has a marginal tax rate of 40% and currently has the following
capital structure:
Long term
debt at 12% with an amount of 8,000,000 and total capital percentage of 25%
Preferred
stock at 14% with an amount of 800,000 and total capital percentage of 25%
Common
stock equity
2000000 shares
outstanding for an amount of 16,000,000 and tot cap percentage of 50
Questions:
a.
Calculate the firm's after tax ROE and EPS.
b. If the
firm retires 4,000,000 of preferred stock using the proceeds from an equal
increase in long term debt, what would have been the after tax ROE and EPS?
c. If the
firm retires 4,000,000 of preferred stock using the proceeds from the sale of
500,000 shares of common stock, what would have been the after tax ROE and EPS?
TUTORIAL PREVIEW
a. Calculate the firm's after tax ROE and EPS.
|
Amount
|
|
|
Earnings befor interest and taxes
|
4,000,000
|
|
Less Interest (8,000,000 x 12%)
|
-960000
|
|
Earnings before taxes
|
3,040,000
|
|
Less Taxes (40%)
|
-1216000
|
File name: Zheng Sen's chinese.xls File type: doc PRICE: $9
