Author Question: Ferris Manufacturing is all equity financed. Current financial data for Ferris is provided in the ... (Read 55 times)

NClaborn · **on:** Apr 25, 2021

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
	Bad	Normal	Good
EBIT	$500	$1,000	$1,500
Interest	0	0	0
Pre-Tax Income	500	1,000	1,500
Taxes (0%)	0	0	0
Net Income	500	1,000	1,500
# Shares	500	500	500
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

CAPTAINAMERICA · **Reply #1 on:** Apr 25, 2021

A FREE account is required to view all solutions!

Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.

Answer Preview

Only 49% of students answer this correctly