Dickinson Company has $11,820,000 million in assets. Currently half of these assets are financed with long-term debt at 9.1 percent and half with common stock having a par value of $8. Ms. Smith, Vice-President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 9.1 percent. The tax rate is 40 percent. Tax loss carryover provisions apply, so negative tax amounts are permissable.
Under Plan D, a $2,955,000 million long-term bond would be sold at an interest rate of 11.1 percent and 369,375 shares of stock would be purchased in the market at $8 per share and retired.
Under Plan E, 369,375 shares of stock would be sold at $8 per share and the $2,955,000 in proceedswould be used to reduce long-term debt.
a.How would each of these plans affect earnings per share? Consider the current plan and the two new plans. (Round your answers to 2 decimal places.)
b- Compute the earnings per share if return on assets fell to 4.55 percent. (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)