Zheng Sen's Chinese After Tax ROE and EPS.

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Zheng Sen's chinese take out had earnings before interest and taxes of 4,000,000 last year. The firm has a marginal tax rate of 40% and currently has the following capital structure:                                                           
Long term debt at 12% with an amount of 8,000,000 and total capital percentage of 25%                                                 
Preferred stock at 14% with an amount of 800,000 and total capital percentage of 25%                                                    
Common stock equity                                                           
2000000 shares outstanding for an amount of 16,000,000 and tot cap percentage of 50                                                  
                                                          
Questions:                                                           
a. Calculate the firm's after tax ROE and EPS.                                                           
b. If the firm retires 4,000,000 of preferred stock using the proceeds from an equal increase in long term debt, what would have been the after tax ROE and EPS?                                                           
c. If the firm retires 4,000,000 of preferred stock using the proceeds from the sale of 500,000 shares of common stock, what would have been the after tax ROE and EPS?                                                           

    • 13 years ago
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