question archive 1) Walker Machine Tools has 6
1) Walker Machine Tools has 6
Subject:FinancePrice:5.87 Bought7
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1) Walker Machine Tools has 6.6 million shares of common stock outstanding. The current market price of Walker common stock is $74 per share rights-on. The company’s net income this year is $23.00 million. A rights offering has been announced in which 660,000 new shares will be sold at $68.50 per share. The subscription price plus eight rights is needed to buy one of the new shares. |
| a. |
What are the earnings per share and price-earnings ratio before the new shares are sold via the rights offering? (Do not round intermediate calculations and round your answers to 2 decimal places.) |
| b. |
What would the earnings per share be immediately after the rights offering? What would the price-earnings ratio be immediately after the rights offering? (Assume there is no change in the market value of the stock, except for the change when the stock begins trading ex-rights.) (Do not round intermediate calculations and round your answers to 2 decimal places.) |
2) Assume a corporation has earnings before depreciation and taxes of $90,000, depreciation of $40,000, and that it is in a 30 percent tax bracket. Compute its cash flow using the following format. (Input all answers as positive values.)
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Answer:
1) a)
Earnings per share = net income / outstanding shares
= 23/6.6 = 3.49
price-earinigs ratio = price/earnings
= 74/3.49 = 21.20
b)
earnings per share = 23/(6.6 + 0.66) = 3.17
new market value = 6600000 * 74 + 660000 * 68.50 = 492921000
new market price = 492921000/(6600000 + 660000) = 67.90
price earnings ratio = 67.90 / 3.17 = 21.42
2)
Computetion of cash flow
| Particular's | Amount |
| Earnings before depreciation and taxes | $90,000 |
| Depreciation | $40,000 |
| Earnings before taxes | $50,000 |
| Taxes 30% | $15,000 |
| Earnings after taxes | $35,000 |
| Depreciation | $40,000 |
| Cash Flow | $75,000 |
