Zheng Sen's Chinese Take-Out Had Earnings Before Interest and Taxes

question 114

Essay

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 percent and currently has the following capital structure: (a)Calculate the firm's after-tax return on equity (ROE)and earnings per share (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 return on equity (ROE)and earnings per share (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 return on equity (ROE)and earnings per share (EPS)?

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Definitions:

Heirs Object

The act of legal beneficiaries or heirs expressing opposition or contesting certain aspects of a will or estate settlement.

Depositary Bank

A bank that holds securities in its custody for depositors and facilitates the exchange and transactions of these securities.

Electronic Funds Transfer Act

A federal law that protects consumers engaging in the transfer of funds through electronic methods, ensuring their rights and establishing responsibilities for institutions.

Revised Article 4

An update or amendment to a section of the Uniform Commercial Code dealing primarily with bank deposits and collections.