Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

solve this Financial management question. Black Berry Farms and Pea Pod Farms are each able to generate EBIT of $232,000. The separate capital structures for

solve this Financial management question.

image text in transcribed

Black Berry Farms and Pea Pod Farms are each able to generate EBIT of $232,000. The separate capital structures for Black Berry and Pea Pod are presented below. Debt @ 8% Common stock Total Common shares EPS Black Berry Share price $1,500,000 1,400,000 $2,900,000 Debt @ 8% Common stock Share price 280,000 Common shares Total a. Compute EPS for both firms (assume a 40 percent tax rate). (Round the final answers to 2 decimal places.) Black Berry $ Pea Pod $ Black Berry $ Pea Pod b. Assuming a P/E ratio of 39 for each firm, what would be each firm's share price? (Round your intermediate calculations and final answers to 2 decimal places.) Black Berry $ $1,100,000 1,800,000 $2,900,000 Pea Pod $ 360,000 c. Assume the P/E ratio would be 36 for the riskier company in terms of heavy debt utilization in the capital structure and 47 for the less risky firm. What would the share price now be for each firm? (Round your intermediate calculations and final answers to 2 decimal places.) Pea Pod $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Handbook Of Blockchain Digital Finance And Inclusion

Authors: David Lee, Robert H. Deng

1st Edition

0128104414, 978-0128104415

More Books

Students also viewed these Finance questions