Top Posters
Since Sunday
j
4
m
4
n
3
m
3
R
3
V
3
e
3
w
3
j
3
a
3
a
3
h
3
Home Q & A Board Other Fields Homework Help Business Finance
New Topic  
EruIluvatar EruIluvatar
wrote...
Go to Answer
Posts: 111
Rep: 0 0
3 years ago
Ferris Manufacturing is all equity financed. Current financial data for Ferris is provided in the table below for three states of nature, which correspond with three levels of sales. The CFO of Ferris, Cameron Fry, is considering a change in capital structure. In particular, he is thinking about borrowing $5,000. He will borrow the money by issuing perpetual bonds with a face value of $5,000 and a coupon rate of 5%. The borrowed money will be used to repurchase shares at $28.57 per share. Repurchased shares will be cancelled. Taxes are 0%. What are Earnings per Share (EPS) in each state of nature if Ferris borrows the money?

Ferris Manufacturing​​​
​BadNormalGood
EBIT $500$1,000$1,500
Interest000
Pre-Tax Income5001,0001,500
Taxes (0%)000
Net Income5001,0001,500
# Shares500500500
EPS$1.00$2.00$3.00


▸ Bad: $1.00; Normal: $2.00; Good: $3.00

▸ Bad: $0.77; Normal: $2.31; Good: $3.85

▸ Bad: $0.50; Normal: $1.50; Good: $2.50

▸ Bad: $1.54; Normal: $3.08; Good: $4.62

▸ Bad: $1.25; Normal: $2.25; Good: $4.15
Textbook 
Corporate Finance Online

Corporate Finance Online


Edition: 2nd
Authors:
Read 153 times
1 Reply
Replies
Answer verified by a subject expert
stay_coldstay_cold
wrote...
#1
Posts: 60
Rep: 0 0
3 years ago
Sign in or Sign up in seconds to unlock everything for free
More solutions for this book are available here
1

Related Topics

EruIluvatar Author
wrote...

3 years ago
Correct Slight Smile TY
gmiannotti
wrote...

Yesterday
Thanks
SupremeDJ
wrote...

2 hours ago
Thank you, thank you, thank you!
New Topic      
Quick Reply
Explore
Post your homework questions and get free online help from our incredible volunteers
  973 People Browsing
Start New Topic Take the Tour CoursesNew Study Tools Topics Trending Browse by Textbook
Live Chat
Related Images
  
 586
  
 623
  
 338
Your Opinion
Who will win the 2024 president election?
Votes: 19
Closes: November 4
Previous poll results: What's your favorite math subject?