Problem 5 23 Leverage and sensitivity analysis LO6 Dickinson Company has $11,960,000 million in assets Currently half of these assets are financed with long term debt at 9 8 percent and half with common stock having a par value of $8 Ms Smith, 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 9 8 percent The tax rate is 45 percent Tax loss carryover provisions apply, so negative tax amounts are permissable Under Plan D, a $2,990,000 million long term bond would be sold at an interest rate of 11 8 percent and 373,750 shares of stock would be purchased in the market at $8 per share and retired Under Plan E, 373,750 shares of stock would be sold at $8 per share and the $2,990,000 in proceeds would be used to reduce long term debt a How would each of these plans affect earnings per share Consider the current plan and the two new plans (Round your answers to 2 decimal places ) Current Plan Plan D Plan E Earnings per share $ $ $ b 1 Compute the earnings per share if return on assets fell to 4 90 percent (Leave no cells blank be certain to enter 0 wherever required Negative amounts should be indicated by a minus sign Round your answers to 2 decimal places ) Current Plan Plan D Plan E Earnings per share $ $ $ b 2 Which plan would be most favorable if return on assets fell to 4 90 percent Consider the current plan and the two new plans Plan E Current Plan Plan D b 3 Compute the earnings per share if return on assets increased to 14 8 percent (Round your answers to 2 decimal places ) Current Plan Plan D Plan E Earnings per share $ $ $ b 4 Which plan would be most favorable if return on assets increased to 14 8 percent Consider the current plan and the two new plans Plan D Plan E Current Plan c 1 If the market price for common stock rose to $10 before the restructuring, compute the earnings per share Continue to assume that $2,990,000 million in debt will be used to retire stock in Plan D and $2,990,000 million of new equity will be sold to retire debt in Plan E Also assume that return on assets is 9 8 percent (Round your answers to 2 decimal places ) Current Plan Plan D Plan E Earnings per share $ $ $ c 2 If the market price for common stock rose to $10 before the restructuring, which plan would then be most attractive Plan E Plan D Current Plan

Question

Problem 5 23 Leverage and sensitivity analysis  LO6  Dickinson Company has $11,960,000 million in assets  Currently half of these assets are financed with long term debt at 9 8 percent and half with common stock having a par value of $8  Ms  Smith, 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 9 8 percent  The tax rate is 45 percent  Tax loss carryover provisions apply, so negative tax amounts are permissable  Under Plan D, a $2,990,000 million long term bond would be sold at an interest rate of 11 8 percent and 373,750 shares of stock would be purchased in the market at $8 per share and retired  Under Plan E, 373,750 shares of stock would be sold at $8 per share and the $2,990,000 in proceeds would be used to reduce long term debt  a  How would each of these plans affect earnings per share  Consider the current plan and the two new plans  (Round your answers to 2 decimal places ) Current Plan Plan D Plan E Earnings per share $ $ $ b 1  Compute the earnings per share if return on assets fell to 4 90 percent  (Leave no cells blank   be certain to enter  0  wherever required  Negative amounts should be indicated by a minus sign  Round your answers to 2 decimal places ) Current Plan Plan D Plan E Earnings per share $ $ $ b 2  Which plan would be most favorable if return on assets fell to 4 90 percent  Consider the current plan and the two new plans  Plan E Current Plan Plan D b 3  Compute the earnings per share if return on assets increased to 14 8 percent  (Round your answers to 2 decimal places ) Current Plan Plan D Plan E Earnings per share $ $ $ b 4  Which plan would be most favorable if return on assets increased to 14 8 percent  Consider the current plan and the two new plans  Plan D Plan E Current Plan c 1  If the market price for common stock rose to $10 before the restructuring, compute the earnings per share  Continue to assume that $2,990,000 million in debt will be used to retire stock in Plan D and $2,990,000 million of new equity will be sold to retire debt in Plan E  Also assume that return on assets is 9 8 percent  (Round your answers to 2 decimal places ) Current Plan Plan D Plan E Earnings per share $ $ $ c 2  If the market price for common stock rose to $10 before the restructuring, which plan would then be most attractive  Plan E Plan D Current Plan

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Question

Problem 5-23 Leverage and sensitivity analysis [LO6] Dickinson Company has $11,960,000 million in assets. Currently half of these assets are financed with long-term debt at

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