Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Black Berry Farms and Pea Pod Farms are each able to generate EBIT of $ 1 0 4 , 0 0 0 . The separate

Black Berry Farms and Pea Pod Farms are each able to generate EBIT of $104,000. The separate capital structures for Black Berry and Pea Pod are presented below.
Black Berry Pea Pod
Debt @ 8% $700,000 Debt @ 8% $300,000
Common stock 600,000 Common stock 1,000,000
Total $1,300,000 Total $1,300,000
Common shares 120,000 Common shares 200,000
a. Compute EPS for both firms (assume a 40 percent tax rate).(Round the final answers to 2 decimal places.)
Black Berry Pea Pod
EPS $
$
b. Assuming a P/E ratio of 23 for each firm, what would be each firms share price? (Round your intermediate calculations and final answers to 2 decimal places.)
Black Berry Pea Pod
Share price $
$
c. Assume the P/E ratio would be 18 for the riskier company in terms of heavy debt utilization in the capital structure and 29 for the less risky firm. What would the share price now be for each firm? (Round your intermediate calculations and final answers to 2 decimal places.)
Black Berry Pea Pod
Share price $
$
d. This part of the question is not part of your Connect assignment.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Handbook Of Anti Money Laundering

Authors: Dennis Cox

1st Edition

0470065745, 978-0470065747

More Books

Students also viewed these Finance questions

Question

Describe the linkages between HRM and strategy formulation. page 74

Answered: 1 week ago

Question

Identify approaches to improving retention rates.

Answered: 1 week ago