Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Additional information: 1. The company uses the debt-to-equity ratio to measure its gearing level. The bankruptcy risk will be significantly high if the ratio exceeds
Additional information: 1. The company uses the debt-to-equity ratio to measure its gearing level. The bankruptcy risk will be significantly high if the ratio exceeds 100%. [Round your debt-to-equity ratio to TWO decimal places in your calculation.] 2. The company's tax rate is 15%. 3. The company assumes that the newly raised fund can generate earnings before interest and tax (EBIT) at the same rate as the existing ROCE. [Round your EBIT to nearest thousand in your calculation.] Required: (a) Calculate the existing return on capital employed (ROCE), earnings per share (EPS), and debt-to-equity ratio of the company before raising the proposed new fund.(8 marks) (b) Calculate the new earnings per share (EPS) and debt-to-equity ratio of the company under each of the three financing alternatives considered by the company.(17 marks) (c) Discuss and recommend which of these three financing alternatives should the company use. Your analysis should base on the debt-to-equity ratio and earning per share. (5 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started