The capital structure for Cain Supplies is:

Cain Supplies

Debt @ 9% $ 100,000

Common stock, $10 par 200,000

Total $ 300,000

Common shares 20,000

Compute the stock price for Cain if it sells at 19 times earnings per share and EBIT is $50,000. The tax rate is 20 percent.

Question

Business

Spencer Ashley

3 October, 22:38

The capital structure for Cain Supplies is:

Cain Supplies

Debt @ 9% $ 100,000

Common stock, $10 par 200,000

Total $ 300,000

Common shares 20,000

Compute the stock price for Cain if it sells at 19 times earnings per share and EBIT is $50,000. The tax rate is 20 percent.

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Answers (1)

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Autumn Ewing · Answer 1

Stock price is $34.16

Explanation:

Net Profit = (50,000 - 9%x 100,000) x (1-20%) = 32,800

Earnings per share = 32,800/20,000 = $1.64

19 times earnings per share = 19 x 1.64 = 31.16

The capital structure for Cain Supplies is:Cain SuppliesDebt @ 9% $ 100,000Common stock, $10 par 200,000Total $ 300,000Common shares 20,000Compute the stock price for Cain if it sells at 19 times earnings per share and EBIT is $50,000. The tax rate is 20 percent.

The capital structure for Cain Supplies is:

Cain Supplies

Debt @ 9% $ 100,000

Common stock, $10 par 200,000

Total $ 300,000

Common shares 20,000

Compute the stock price for Cain if it sells at 19 times earnings per share and EBIT is $50,000. The tax rate is 20 percent.