PART A

An all-equity company currently has 6,700 shares of common stock outstanding. The current market price of each share is $18. The company has decided to issue corporate bonds in the total amount of $56,000 at an annual cost of 6 percent. The company will use these funds to repurchase some of its common stock shares from the market. Calculate the earnings per share at the break-even level of the company's earnings before interest and taxes (i.e., at which the company's stockholders are indifferent between the company having debt or not.) PART B

Fun With Finance is evaluating a new 6-year project. This project is estimated to generate annual sales revenues of $375,000. The estimated annual costs of goods sold equal $263,000. The purchase of fixed assets in the amount of $475,000 will be necessary to start this project. These assets will be depreciated according to the 5-year property MACRS class depreciation schedule. Here are the annual depreciation percentages for the first six years of life of 5-year class assets: 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company is in the 40 percent income tax rate bracket. Calculate the operating cash flow for Year 3 of this project.