Top Posters
Since Sunday
5
o
5
4
m
4
b
4
x
4
a
4
l
4
t
4
S
4
m
3
s
3
New Topic  
EruIluvatar EruIluvatar
wrote...
Posts: 111
Rep: 0 0
2 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 127 times
1 Reply
Replies
Answer verified by a subject expert
stay_coldstay_cold
wrote...
Posts: 60
Rep: 0 0
2 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...

2 years ago
Smart ... Thanks!
wrote...

Yesterday
Just got PERFECT on my quiz
wrote...

2 hours ago
Thanks
New Topic      
Explore
Post your homework questions and get free online help from our incredible volunteers
  908 People Browsing
 113 Signed Up Today
Related Images
  
 284
  
 292
  
 346
Your Opinion
Which industry do you think artificial intelligence (AI) will impact the most?
Votes: 308