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2. General Motors (GM) Inc., a producer of turbine generators, is in this following situation: Operating Income = $4 million, tax rate, T= 35%, Debt
2. General Motors (GM) Inc., a producer of turbine generators, is in this following situation: Operating Income = $4 million, tax rate, T= 35%, Debt outstanding = $2,000,000, Interest rate on debt = 10%, total common shares outstanding = 600,000 and market value per share = $10. Since product market is stable and the company expects no growth, all earnings are paid out as dividend. Market Information: 8% market risk premium and 4.5% risk-free rate. GM's beta is 1.05. (a) Calculate General Motor's Earnings Per Share and the Required Rate of Return. [6 Marks]
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