Problem 1) The Tims Corporation expects earnings of $8,000,000 in the current year on 6,000,000 shares of common stock. The company is considering the effects on expected earnings of issuing an additional 2,000,000 shares of common stock.
(a) What will be the initial dilution in earnings per share if the new stock is issued?
(b) If the firm sells for a net price of $23 per share and is able to earn 60% after tax on the proceeds before the end of the year, what will be the earnings per share?
Problem 2) CAN Corporation issued a $1,000 par twenty-year bond 10 years ago. The bond, which pays interest of $80 annually, was issued at par.
(a) What was the yield to maturity on the bond at the time of issue?
(b) If the bond is currently selling at $820, what is its approximate yield to maturity?
(c) If the bond is currently selling for $820, what is the current yield on the bond?
Problem 3) Stock in Rich Corporation is currently selling for $25.00 per share. The firm's dividend yield is 10%.
(a) If the firm distributes 40% of its earnings, what are its earnings?
(b) What is the firm's P/E ratio?