Based on Exhibit 1, if Yetas management implemented Proposal #3 at the current share price, earnings per
Question:
Based on Exhibit 1, if Yeta’s management implemented Proposal #3 at the current share price, earnings per share would:
A. decrease.
B. remain unchanged.
C. increase.
John Ladan is an analyst in the research department of an international securities firm. Ladan is currently analyzing Yeta Products, a publicly traded global consumer goods company located in the United States. Selected data for Yeta are presented in Exhibit 1.
Yeta currently does not pay a dividend, and the company operates with a target capital structure of 40% debt and 60% equity. However, on a recent conference call, Yeta’s management indicated that they are considering four payout proposals:
Proposal #1: Issue a 10% stock dividend.
Proposal #2: Repurchase US\($40\) million in shares using surplus cash.
Proposal #3: Repurchase US\($40\) million in shares by borrowing US\($40\) million at an after-tax cost of borrowing of 8.50%.
Proposal #4: Initiate a regular cash dividend.
Step by Step Answer:
Corporate Finance Workbook Economic Foundations And Financial Modeling
ISBN: 9781119743811
3rd Edition
Authors: CFA Institute, Michelle R. Clayman, Martin S. Fridson, George H. Troughton