quiz4b.ch12ch13ch14ch15

quiz4b.ch12ch13ch14ch15 - University of Houston Bauer...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
University of Houston Bauer College of Business Finance 3332 Principles of Financial Management Quiz 4b: Spring, 2006 Please show all work and clearly indicate your answer. (9 points each) Use the following information for questions 1 and 2. Alford Corporation, whose stock is selling for $25 per share, has the following stockholder equity account. Common Stock ($3.00 par, 50,000 shares) $ 150,000 Additional Paid in Capital 800,000 Retained Earnings 900,000 Total Stockholders Equity $1,850,000 1. The firm declared a 6 for 1 stock split. Show the effect of the stock split on the stockholders equity account. Common Stock ($___ par, ____________ shares) $ __________ Additional Paid in Capital __________ Retained Earnings __________ Total Stockholders Equity $ __________ 2. i) The firm declared a 6 percent stock dividend. Show the effect of the stock dividend on the stockholders equity account. Common Stock ($___ par, ____________ shares) $ __________ Additional Paid in Capital __________ Retained Earnings __________ Total Stockholders Equity $ __________ ii) What effect will the stock dividend have on stockholder wealth? iii) What is the expected price per share after the stock dividend?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Use the following information for questions 3 and 4. Ross Industries is planning an expansion costing $500,000. It can finance with new equity sold to net $20 per share, or with the sale of bonds with an 8% coupon. The firm’s marginal tax rate is 40%. Ross currently has the following simplified balance sheet. Liabilities and Capital Bonds (6% coupon) $2,000,000 Common Stock at $2 par 250,000 shares outstanding 500,000 Additional Paid in Capital 800,000 Retained Earnings 1,100,000 Total Liabilities and Capital $4,400,000 3. What is the EBIT-EPS indifference point of the two financing plans? 4. After the expansion, the firm’s EBIT is expected to be $120,000 with a standard deviation of $40,000. If the debt alternative is chosen, what is the probability that the company will have negative earnings per share? Unleveraged
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/13/2011 for the course FINA 3332 taught by Professor Darlachisholm during the Spring '08 term at University of Houston.

Page1 / 8

quiz4b.ch12ch13ch14ch15 - University of Houston Bauer...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online