higher than anticipated, thus temporarily causing profits to drop below projected levels. Because there are so many uncertainties surrounding this revolutionary new product, both Lomax and Vickers recommended the common stock alternative. Table 3 Year Ended December 31, 2007 (Thousands of Dollars) Current assets $19,000 Fixed assets 33,000 Total assets $52,000 Current liabilities (accruals and accounts payable) $ 9,000 Long-term debt (9 percent) 20,000 Common stock ($1.80 par) 18,000 Retained earnings 5,000 Total liabilities and net worth $52,000 Table 4 Industry Ratios Debt/total assets 50% Times-interest-earned 8 X Times fixed charges covered 6 X Profit after taxes/sales 9% Profit after tax/total assets 9% Profit after taxet worth 14% Price/earnings 40X Dahlgren suggested that a compromise in the form of an issue of preferred stock might be the optimum decision. Vickers, Lomax, and Dale all thought this was worth looking into, but after the meeting, Dahlgren himself questioned the cost of such a proposal. His primary concern was that the after-tax cost of preferred stock would be substantially higher than the after-tax cost of debt, and the company would still be locked into coverage of a fixed payment QUESTIONS 1. Assuming that the new funds earn the same rate of return before interest and taxes as is currently earned on the firm's assets (earnings before interest and taxes/total assets), what would earnings per share be under each alternative? Assume that the new outside funds are employed during the whole year 2008, but that 2008 additions to retained earnings are not employed until 2009. Interpret your measures of earnings per share of three alternatives