Fage l of 3 aion of EPS And Retained Earnings Everdeen...Chegg.0 EXPERT.&A Search Chegg. Study TEXTBOOK SOLUTIONS = etained earnings everdee study / business/ finance / finance questions and answers / calculation of eps and r Question: Calculation of EPS and retained earnings Ever alculation of EPS and retained earnings Everdeen Mining, Inc., ended 2019 with net profits before axes of $ 436 comma 000$436,000. The company is subject to a 21 %21% tax rate and must pay $ 64 omma 000S64,000 in preferred stock dividends before distributing any earnings on the 170 comma 00170,000 shares of common stock currently outstanding. a. Calculate Everdeen's 2019 earnings per are (EPS). b. If the firm paid common stock dividends of $ 0.80$0.80 per share, how many dollars wou to retained earnings? a. The firm's EPS is Snothing. (Round to the nearest cent) pert Answer rohitp answered this Was this answer helpful? 810 answers Chapter Case 9 Making Star Products' Financing/Investment Decision Star Products Company is a growing manufacturer of automobile accessories whose stock is actively traded on the over-the-counter (OTC) market. During 20x2, the Dallas-based company experienced sharp increases in both sales and earnings. Because of this recent growth, Melissa Jen, the company's treasurer, wants to make sure that available funds are being used to their fullest. Managem ent policy is to maintain the current capital structure proportions of 30% long- term debt, 10% preferred stock, and 60% common stock equity for at least the next 3 years. The firm is in the 40% tax bracket. Star's division and product managers have presented several competing investment opportunities to Jen. However, because funds are limited, choices of which projects to accept must be made. Star's current investment opportunities are shown in the table below. Investment Opp ortunities for Star Products Company Initial Investm ent Internal rate af investment opportunity return (IRR) $400,000 15% 200,000 25 700,000 400,000 23 500,000 17 600,000 19 14 500,000 To estimate the firm's weighted average cost of capital (WACC), Jen contacted a leading investment banking firm, which provided the financing cost data shown in the following table. Financing Cost Data Star Products Company Long-term debt: The fim can raise 1450,000 of additional debt by selling 15-year, 11,000-p value, 9% coupon interest rate bonds that pay anmaal interest It expects to net $960 per bond after flotation costs. Any debt in excess of$450,000 will have a before-tax cost, ra of i3% Proferred stock: Preferred stock, regardless of the anount sold, can be issued with a $70 p value and a 14% annual dividend rate and wil net $65 per share after flotation costs. Comman stock equity: The firm expects di vi dends and eanings per share to be 1096 and 83.2a respectively, in 2013 and to continue to grow at a constant rate of 11% per year. The firm's stock currently sells for $12 per share. Star expects to have $1,500,000 of retained eanings available in the coming year. Once the retained earnings have been exhausted, the 6irm can raise additional funds by selling new common stock, netting 19 per share after underpricing and lotation co sts. To Do: Calculate the cost of each source of financing, as specified: 1.Long-term debt, first $450,000. (use approximation method) 2. Long-term debt, greater than $450,000. 3. Preferred stock, all amounts. 4.Common stock equity, first $1,500,000. (use of Retained Earnings) 5.Common stock equity, greater than $1,500,000. a. b. Calculate the "Breaking Points" for any source of capital that increases in cost. First, recall that the firm will try to maintain their optimal capital structure - that means they will sell debt and equity in proportions that will maintain, over some reasonable period o time, their optimal capital structure. Remember that the cost of capital has three parts: the cost of debt, the cost of preferred stock, and the cost of common stock (Retained earnings is used up first). If the cost of one these source of capital increase in cost the weighted average (WACC) increases in cost. The "breaking point" is the total amount new financing that the WACC goes up because one or more of the sources of new financing goes up. Calculate Star's weighted average cost of capital (WACC) for each of the following situations: 1.Total new financing from $0 to $1.5 million. 2.New financing from $1,500,001 to $2,500,000 3. New financing greater than $2,500,000. c. d. Regardiless of Star's WACC, rank the projects according to most attractive to least attractive and explain your ranking procedure. If you had unlimited access to financing, which projects would you do - Why? new
