21. Problem 5-23 Leverage and sensitivity analysis [LO6] Dickinson Company has $11,800,000 in assets. Currently half of these assets are financed with long-term debt at 9.0 percent and half with common stock having a par value of $8. Ms. Smith, vice-president of finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 9.0 percent. The tax rate is 35 percent.?? Under Plan D, a $2,950,000 long-term bond would be sold at an interest rate of 11.0 percent and 368,750 shares of stock would be purchased in the market at $8 per share and retired.?? Under Plan E, 368,750 shares of stock would be sold at $8 per share and the $2,950,000 in proceeds would be used to reduce long-term debt.?? (a) ?Compute the earnings per share for the current plan and the two new plans. (Round your answers to 2 decimal places. Omit the “$” sign in your response.)?? ?Current Plan?Plan D?Plan E?? Earnings per share?$ ?$ ?$ ???? (b-1)?Compute the earnings per share if return on assets fell to 4.50 percent. (Round your answers to 2 decimal places. Leave no cells blank – be certain to enter “0” wherever required. Negative amounts should be indicated by a minus sign. Omit the “$” sign in your response.)?? ?Current Plan?Plan D?Plan E?? Earnings per share?$ ?$ ?$ ???? (b-2)?Which plan would be most favorable if return on assets fell to 4.50 percent? Consider the current plan and the two new plans.?? ? ?? ??Plan E???Current Plan???Plan D???? (b-3)?Compute the earnings per share if return on assets increased to 14.0 percent. (Round your answers to 2 decimal places. Omit the “$” sign in your response.)?? ?Current Plan?Plan D?Plan E?? Earnings per share?$ ?$ ?$ ???? (b-4)?Which plan would be most favorable if return on assets increased to 14.0 percent? Consider the current plan and…
Attachments:
0.docx