Recapitalization A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to leveraged capital structure. The proposal is for Focus to sell $49,000,000 worth of long-term debt at an interest rate of 7.75% and then repurchase as many shares as possible at a price of $22 per share. Focus currently has 4,900,000 shares outstanding and expects EBIT to be $25,000,000 per year in perpetuity. Ignoring taxes, calculate the following: a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization. b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures. c. The EBIT where EPS is the same for both capital structures. d. The EBIT where EPS is zero for both capital structures. a. The number of shares outstanding for Focus if it adopts the proposed recapitalization is The per-share price for Focus if it adopts the proposed recapitalization is $ The debt-to-equity ratio for Focus if it adopts the proposed recapitalization is b. The earnings per share (EPS) for Focus under the current capital structure is $ The earnings per share (EPS) for Focus under the proposed capital structure is $ The return on equity (ROE) for Focus under the current capital structure is The return on equity (ROE) for Focus under the proposed capital structure is c. The EBIT where EPS is the same for both capital structures is $ d. The EBIT where EPS is zero for both capital structures is $ shares. (Round to the nearest whole number.) (Round to the nearest dollar.) (Round to two decimal places.) (Round to the nearest cent.) (Round to the nearest cent.) %. (Round to two decimal places.) %. (Round to two decimal places.) (Round to the nearest dollar.) (Round to the nearest dollar.)
Recapitalization A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to leveraged capital structure. The proposal is for Focus to sell $49,000,000 worth of long-term debt at an interest rate of 7.75% and then repurchase as many shares as possible at a price of $22 per share. Focus currently has 4,900,000 shares outstanding and expects EBIT to be $25,000,000 per year in perpetuity. Ignoring taxes, calculate the following: a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization. b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures. c. The EBIT where EPS is the same for both capital structures. d. The EBIT where EPS is zero for both capital structures. a. The number of shares outstanding for Focus if it adopts the proposed recapitalization is The per-share price for Focus if it adopts the proposed recapitalization is $ The debt-to-equity ratio for Focus if it adopts the proposed recapitalization is b. The earnings per share (EPS) for Focus under the current capital structure is $ The earnings per share (EPS) for Focus under the proposed capital structure is $ The return on equity (ROE) for Focus under the current capital structure is The return on equity (ROE) for Focus under the proposed capital structure is c. The EBIT where EPS is the same for both capital structures is $ d. The EBIT where EPS is zero for both capital structures is $ shares. (Round to the nearest whole number.) (Round to the nearest dollar.) (Round to two decimal places.) (Round to the nearest cent.) (Round to the nearest cent.) %. (Round to two decimal places.) %. (Round to two decimal places.) (Round to the nearest dollar.) (Round to the nearest dollar.)
Excel Applications for Accounting Principles
4th Edition
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Gaylord N. Smith
ChapterMB: Model-building Problems
Section: Chapter Questions
Problem 8M
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Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
Transcribed Image Text:Recapitalization A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to leveraged capital structure. The proposal is for Focus to sell
$49,000,000 worth of long-term debt at an interest rate of 7.75% and then repurchase as many shares as possible at a price of $22 per share. Focus currently has 4,900,000 shares
outstanding and expects EBIT to be $25,000,000 per year in perpetuity. Ignoring taxes, calculate the following:
a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization.
b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures.
c. The EBIT where EPS is the same for both capital structures.
d. The EBIT where EPS is zero for both capital structures.
a. The number of shares outstanding for Focus if it adopts the proposed recapitalization is
The per-share price for Focus if it adopts the proposed recapitalization is $
The debt-to-equity ratio for Focus if it adopts the proposed recapitalization is
b. The earnings per share (EPS) for Focus under the current capital structure is $
The earnings per share (EPS) for Focus under the proposed capital structure is $
The return on equity (ROE) for Focus under the current capital structure is
The return on equity (ROE) for Focus under the proposed capital structure is
c. The EBIT where EPS is the same for both capital structures is $
d. The EBIT where EPS is zero for both capital structures is $
shares. (Round to the nearest whole number.)
(Round to the nearest dollar.)
(Round to two decimal places.)
(Round to the nearest cent.)
(Round to the nearest cent.)
%. (Round to two decimal places.)
%. (Round to two decimal places.)
(Round to the nearest dollar.)
(Round to the nearest dollar.)
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