Sep 29, 2017 term paper 2

NELSON CORPORATION HAS MADE THE FOLLOWING FORECAST OF SALES, WITH THE ASSOCIATED PROBABILITIES OF…

This paper concentrates on the primary theme of NELSON CORPORATION HAS MADE THE FOLLOWING FORECAST OF SALES, WITH THE ASSOCIATED PROBABILITIES OF… in which you have to explain and evaluate its intricate aspects in detail. In addition to this, this paper has been reviewed and purchased by most of the students hence; it has been rated 4.8 points on the scale of 5 points. Besides, the price of this paper starts from £ 40. For more details and full access to the paper, please refer to the site.

Nelson Corporation has made the following forecast of sales, with the associated probabilities of occurrence noted.

Sales

Probability

$200,000

.20

300,000

.60

400,000

.20
Nelson Corporation has made the following forecast of sales, with the associated probabilities of occurrence noted.

Sales

Probability

$200,000

.20

300,000

.60

400,000

.20

The company has fixed operating costs of $100,000 per year, and variable operating costs represent 40% of sales. The existing capital structure consists of 25,000 shares of common stock that have a $10 per share book value. No other capital items are outstanding. The marketplace has assigned the following required returns to risky earnings per share.

Coefficient of

Estimated required

variation of EPS

return, ks

0.43

15%

0.47

16

0.51

17

0.56

18

0.60

22

0.64

24

The company is contemplating shifting its capital structureby substituting debt in the capital structure for common stock. The three different debt ratios under consideration are shown in the following table, along with an estimate, for each ratio, of the corresponding required interest rate on alldebt.

Debt

Interest rate

ratio

on all debt

20%

10%

40

12

60

14

The tax rate is 40%. The market value of the equity for a leveraged firm can be found by using the simplified method (see Equation 12.12).

a. Calculate the expected earnings per share (EPS), the standard deviation of EPS, and the coefficient of variation of EPS for the three proposed capital structures.

b. Determine the optimal capital structure, assuming (1) maximization of earnings per share and (2) maximization of share value.

c. Construct a graph (similar to Figure 12.7) showing the relationships in part b.(Note:You will probably have to sketch the lines, because you have only three data points.)


0% Plagiarism Guaranteed & Custom Written, Tailored to your instructions


International House, 12 Constance Street, London, United Kingdom,
E16 2DQ

UK Registered Company # 11483120


100% Pass Guarantee

Order Now

STILL NOT CONVINCED?

We've produced some samples of what you can expect from our Academic Writing Service - these are created by our writers to show you the kind of high-quality work you'll receive. Take a look for yourself!

View Our Samples

corona virus stop
FLAT 25% OFF ON EVERY ORDER.Use "FLAT25" as your promo code during checkout