Warp Tense Ltd. has the following assets:
Current Assets (Temporary): $2,000,000
Current Assets (Permanent): $500,000
Capital Assets: $4,500,000
Total Assets: $7,000,000
Its operating profit (EBIT) is expected to be $0.45 million. Its tax rate is 30 percent. Shares are valued $25. Capital structure is either short term financing at 3 percent or equity. There is no long term debt.
a) Calculate expected earnings per share (e.p.s.) if the firm is perfectly hedged.
b) Calculate expected earnings per share (e.p.s.) if it has a capital structure of 45% debt.
c) Recalculate a and b if short term rates go to 7 percent
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