Overhaul Experts, Ltd., (OEL) specializes in taking underperforming companies to a higher level of performance. OELs capital

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Overhaul Experts, Ltd., (OEL) specializes in taking underperforming companies to a higher level of performance. OELs capital structure at December 31, 2009, included 11,000 shares of $2.30 preferred stock and 125,000 shares of common stock. During 2010, OEL issued common stock and ended the year with 131,000 shares of common stock outstanding.
Average common shares outstanding during 2010 were 128,000. Income from continuing operations during 2010 was $220,000. The company discontinued a segment of the business at a loss of $67,000, and an extraordinary item generated a gain of $50,000. All amounts are after income tax.

Requirements
1. Compute OELs earnings per share. Start with income from continuing operations.
2. Analysts believe OEL can earn its current level of income for the indefinite future.
Estimate the market price of a share of OEL common stock at investment capitalization rates of 10%, 12%, and 14%. Which estimate presumes an investment in OEL is the most risky? How can you tell?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...
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Financial accounting

ISBN: 978-0136108863

8th Edition

Authors: Walter T. Harrison, Charles T. Horngren, William Bill Thomas

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