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Black Berry Farms and Pea Pod Farms are each able to generate EBIT of $176,000. The separate capital structures for Black Berry and Pea Pod
Black Berry Farms and Pea Pod Farms are each able to generate EBIT of $176,000. The separate capital structures for Black Berry and Pea Pod are presented below. Pea Pod Black Berry Debt @ 11% Common stock $850,000 750,000 Debt @ 11% Common stock $450,000 1,150,000 Total $1,600,000 Total $1,600,000 Common shares 150,000 Common shares 230,000 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 26 for each firm, what would be each firm's 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 21 for the riskier company in terms of hea debt utilization in the capital structure and 32 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
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