Turnaround Specialists, Ltd., (TSL) specializes in taking underperforming companies to a higher level of performance. TSL's capital

Question:

Turnaround Specialists, Ltd., (TSL) specializes in taking underperforming companies to a higher level of performance. TSL's capital structure at December 31, 20X7 included 10,000 shares of $2.50 preferred stock and 120,000 shares of common stock. During 20X8, TSL issued common stock and ended the year with 127,000 shares of common stock outstanding. Average common shares outstanding during 20X8 were 123,500. Income from continuing operations during 20X8 was $219,000. The company discontinued a segment of the business at a loss of $69,000, and an extraordinary item generated a gain of $49,500. All amounts are after income tax.

Required

1. Compute TSL's earnings per share. Start with income from continuing operations.

2. Analysts believe TSL can earn its current level of income for the indefinite future. Estimate the market price of a share of TSL common stock at investment capitalization rates of 6%, 8%, and 10%. Which estimate presumes an investment in TSL 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...