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Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $136.000. The separate capital
Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $136.000. The separate capital structures for Steriting and Royal are shown here: a. Compute earnings per share for both firms. Assume a 30 percent tax rate. Note: Round your answers to 2 decimal places. b. In part a you should have gotten the same answer for both companies' eamings per share. Assuming a price-earnings (PiE) ratio of 21 for each company, what would its stock price be? Note: Do not round intermediate colculations. Round your answer to 2 decimal places. c. Now as part of your analysis, assume the P/E ratlo would be 15 for the riskier compary in terms of heavy debt utilization in the capital structure and 25 for the less risky company. What would the stock prices for the fwo firms be under these assumptions? (Note. Although interest tates also would likely be different based on risk, we will hold them constant for ease of analysis) Note: Do not round intermediate calculations. Round your answers to 2 decimal places
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