4. Suppose that Orange Inc. has $100 million of assets, financed entirely with equity. The...
70.2K
Verified Solution
Link Copied!
Question
Finance
4. Suppose that Orange Inc. has $100 million of assets, financed entirely with equity. The firm has 5 million shares of stock outstanding valued at $40 per share. Management has identified investment opportunities requiring $50 million of new funds and can raise the funds in one of the following three ways: Financing package 1: Issue $50 million equity Financing package 2: Issue $25 million equity and borrow $25 million with an annual interest of 10 % Financing package 3: Borrow $50 million with an annual interest of 10 %. Equity No.of shares Debt-to-equity Debt-to-assets ratio ratio A) Complete the following table Financing Assets Debt Package 1 2 3 N B) If operating earnings of Orange Inc. are $18 million what is the return on assets? C) Assuming there are no taxes, compute the earnings per share for the three financing packages. D) Compute earnings for share for the three financing packages for ROA of 15, 10, 12 and 8 % and summarize your results in a table. E) Compute the degree of leverage for the three financing packages for the ROA's in part
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
