Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Y8 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
Y8
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. Black Berry Pea Pod Debt @ 8% $1,500,000 Debt @ 8% $1,100,000 Common stock 1,460,800 Common stock 1,808,000 Total $2,900,000 Total $2,900,000 Common shares 280,000 Common shares 360,008 a. Compute EPS for both firms (assume a 40 percent tax rate). (Round the final answers to 2 decimal places.) Black Berry Pea Pod eps s 5 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 Pea Pod Share price s $ 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.) Black Berry Pea Pod Share price 3 [:::::::] $ [:::::::] d. This part of the question is not part of your Connect assignmentStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started