Question
1.Last year Alpine Growers experienced a 30% increase in earnings per share on 10% increase in sales. If management knows that Alpines DOL is 1.20,
1.Last year Alpine Growers experienced a 30% increase in earnings per share on 10% increase in sales. If management knows that Alpines DOL is 1.20, what is its DFL?
2.Feldspar Inc. is considering the capital structure for a new division. Management has been given the following cost information:
| Debt/assets |
| kd(BT Cost of Debt) |
| ke(Cost of Equity) |
| .35 |
| 7% |
| 13% |
| .40 |
| 7.25% |
| 13.3% |
| .45 |
| 8.25% |
| 14.0% |
| .50 |
| 9% |
| 14.6% |
| .55 |
| 10.5% |
| 16.75% |
Based on this information, what capital structure (debt/asset ratio) should management accept? Assume the marginal tax rate is 30%.
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Handbook Of Quantitative Finance And Risk Management
Authors: Cheng-Few Lee, John Lee
2010th Edition
0387771166, 978-0387771168
