Zheng Sen's Chinese Take-Out had earnings before interest and taxes of $4,000,000 last year.The firm has a marginal tax rate of 40 percent and currently has the following capital structure: (a)Calculate the firm's after-tax return on equity (ROE)and earnings per share (EPS).
(b)If the firm retires $4,000,000 of preferred stock using the proceeds from an equal increase in long-term debt,what would have been the after-tax return on equity (ROE)and earnings per share (EPS)?
(c)If the firm retires $4,000,000 of preferred stock using the proceeds from the sale of 500,000 shares of common stock,what would have been the after-tax return on equity (ROE)and earnings per share (EPS)?

Question

Zheng Sen's Chinese Take-Out had earnings before interest and taxes of $4,000,000 last year.The firm has a marginal tax rate of 40 percent and currently has the following capital structure:  (a)Calculate the firm's after-tax return on equity (ROE)and earnings per share (EPS).
(b)If the firm retires $4,000,000 of preferred stock using the proceeds from an equal increase in long-term debt,what would have been the after-tax return on equity (ROE)and earnings per share (EPS)?
(c)If the firm retires $4,000,000 of preferred stock using the proceeds from the sale of 500,000 shares of common stock,what would have been the after-tax return on equity (ROE)and earnings per share (EPS)?

Quizplus · Accepted Answer

The Answer of Zheng Sen's Chinese Take-Out had earnings before interest and taxes of $4,000,000 last year.The firm has a marginal tax rate of 40 percent and currently has the following capital structure:  (a)Calculate the firm's after-tax return on equity (ROE)and earnings per share (EPS).
(b)If the firm retires $4,000,000 of preferred stock using the proceeds from an equal increase in long-term debt,what would have been the after-tax return on equity (ROE)and earnings per share (EPS)?
(c)If the firm retires $4,000,000 of preferred stock using the proceeds from the sale of 500,000 shares of common stock,what would have been the after-tax return on equity (ROE)and earnings per share (EPS)?

Zheng Sen's Chinese Take-Out Had Earnings Before Interest and Taxes