Top management of Pharoah company is considering two alternative capital structures for $2025.$ The first $($the $"$no debt" structure$)$

would be to have $$1,060,000$ in assets and $$1,060,000$ in stockholders' equity, with $42,400$ shares outstanding the entire year. This is

the structure the company had on December $31,2024.$ Alternatively, $($the "with debt" structure$)$ on January $1,2025,$ the company

could issue $$371,000$ in debt at $6\%$ interest and immediately use the proceeds to repurchase $21,200$ shares of stock for $$371,000.$ The

expected amount of net income $($ignoring taxes$),$ prior to any interest costs, is $$159,000$ for $2025.$

Assume the company pays dividends on common stock equal to its net income each year. Also, assume the accrued interest on the

debt was paid at December $31,2025,$ and the company has no other debt outstanding at year$-$end. Also, assume the company has

$$1,060,000$ in assets at both the beginning and the end of $2025.$

$($a$)$

Your answer is partially correct.

Compute the company's net income and earnings per share under both structures. $($Ignore income taxes in your computations.$)$

$($Round earnings per share to $2$ decimal places, e$.$g$.2\mathrm{.}66.)$Compute the company's return on common stockholders' equity and return on assets under both structures. $($Round answers to $2$

decimal places, e$.$g$.2\mathrm{.}66\%.)$Top management of Pharoah company is considering two alternative capital structures for $2025.$ The first $($the $"$no debt" structure$)$

would be to have $$1,060,000$ in assets and $$1,060,000$ in stockholders' equity, with $42,400$ shares outstanding the entire year. This is

the structure the company had on December $31,2024.$ Alternatively, $($the "with debt" structure$)$ on January $1,2025,$ the company

could issue $$371,000$ in debt at $6\%$ interest and immediately use the proceeds to repurchase $21,200$ shares of stock for $$371,000.$ The

expected amount of net income $($ignoring taxes$),$ prior to any interest costs, is $$159,000$ for $2025.$

Assume the company pays dividends on common stock equal to its net income each year. Also, assume the accrued interest on the

debt was paid at December $31,2025,$ and the company has no other debt outstanding at year$-$end. Also, assume the company has

$$1,060,000$ in assets at both the beginning and the end of $2025.$

$($a$)$

Your answer is partially correct.

Compute the company's net income and earnings per share under both structures. $($Ignore income taxes in your computations.$)$

$($Round earnings per share to $2$ decimal places, e$.$g$.2\mathrm{.}66.)$

No Debt

$

Interest Expense

Outstanding Shares

Earnings Per Share

Earnings Per Share

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