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Pulp Paper Company and Holt Paper Company are each able to generate EBIT of $264,000. The separate capital structures for Pulp and Holt are presented

Pulp Paper Company and Holt Paper Company are each able to generate EBIT of $264,000. The separate capital structures for Pulp and Holt are presented below.

Pulp Holt
Debt @ 11% $1,250,000 Debt @ 11% $850,000
Common stock 1,150,000 Common stock 1,550,000
Total $2,400,000 Total $2,400,000
Common shares 230,000 Common shares 310,000

a. Compute EPS for both firms (assume a 40 percent tax rate). (Round the final answers to 2 decimal places.)

Pulp Holt
EPS $ $

b. Assuming a P/E ratio of 34 for each firm, what would be each firms share price? (Do not round intermediate calculations. Round the final answers to 2 decimal places.)

Pulp Holt
Share price $ $

c. Assume the P/E ratio would be 29 for the riskier company in terms of heavy debt utilization in the capital structure and 40 for the less risky firm. What would the share price now be for each firm? (Do not round intermediate calculations. Round the final answers to 2 decimal places.)

Pulp Holt
Share price $ $

d. Not available in Connect.

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