Dickinson Company has $$12$ million in assets. Currently half of these assets are financed with long$-$term debt at $10$ percent and half with common stock having a par value of $$8.$ Ms$.$ Park, Vice President of Finance, wishes to analyze two refinancing plans, one with more debt $($D$)$ and one with more equity $($E$).$ The company earns a return on assets before interest and taxes of $10$ percent. The tax rate is $45$ percent. Tax loss carryover provisions apply, so negative tax amounts are permissable.

Under Plan D$,$ a $$3$ million long$-$term bond would be sold at an interest rate of $12$ percent and $375,000$ shares of stock would be purchased in the market at $$8$ per share and retired.

Under Plan E$,375,000$ shares of stock would be sold at $$8$ per share and the $$3,000,000$ in proceeds would be used to reduce long$-$term debt.

a$.$ Compute earnings per share considering the current plan and the two new plans.

Note: Round your answers to $2$ decimal places.

b$-1.$ Compute the earnings per share if return on assets fell to $5$ percent.

Note: Negative amounts should be indicated by a minus sign. Round your answers to $2$ decimal places. Leave no cells blank be certain to enter $0$ wherever required.

b$-2.$ Which plan would be most favorable if return on assets fell to $5$ percent? Consider the current plan and the two new plans.

multiple choice $1$

Plan E

Plan D

Current Plan

b$-3.$ Compute the earnings per share if return on assets increased to $15$ percent.

Note: Round your answers to $2$ decimal places.

b$-4.$ Which plan would be most favorable if return on assets increased to $15$ percent? Consider the current plan and the two new plans.

multiple choice $2$

Plan E

Current Plan

Plan D

c$-1.$ If the market price for common stock rose to $$12$ before the restructuring, compute the earnings per share. Continue to assume that $$3$ million in debt will be used to retire stock in Plan D and $$3$ million of new equity will be sold to retire debt in Plan E$.$ Also assume that return on assets is $10$ percent.

Note: Round your answers to $2$ decimal places.

c$-2.$ If the market price for common stock rose to $$12$ before the restructuring, which plan would then be most attractive?

multiple choice $3$

Plan D

Current Plan

Plan E

PrevQuestion $9$ of $11$ Total