Warp Tense Ltd. has the following assets:

Current Assets (Temporary): $2,000,000
Current Assets (Permanent): $500,000
Capital Assets: $4,500,000
Total Assets: $7,000,000

Its operating profit (EBIT) is expected to be $0.45 million. Its tax rate is 30 percent. Shares are valued $25. Capital structure is either short term financing at 3 percent or equity. There is no long term debt.

a) Calculate expected earnings per share (e.p.s.) if the firm is perfectly hedged.

b) Calculate expected earnings per share (e.p.s.) if it has a capital structure of 45% debt.

c) Recalculate a and b if short term rates go to 7 percent

did you get the answer? i need help on this too. its my assignment.

To calculate the expected earnings per share (EPS) for different scenarios, we need to understand the components of EPS and the impact of different factors. EPS is calculated as the net income available to common shareholders divided by the number of outstanding shares.

a) Calculate expected earnings per share (EPS) if the firm is perfectly hedged:

To calculate the EPS, we need to determine the net income available to common shareholders. The net income can be calculated by subtracting the taxes from the operating profit (EBIT). In this case, the operating profit is given as $0.45 million, and the tax rate is 30 percent.

Net Income = EBIT - (Tax Rate x EBIT)
Net Income = $0.45 million - (0.30 x $0.45 million)
Net Income = $0.45 million - $0.135 million
Net Income = $0.315 million

Now, to calculate the EPS, we need to divide the net income by the number of outstanding shares. The number of outstanding shares is not given in the information provided, so we cannot calculate the exact EPS without that information.

b) Calculate expected earnings per share (EPS) if it has a capital structure of 45% debt:

To calculate the EPS with a specific capital structure, we need to consider the interest expense on the debt in addition to the tax rate.

First, we need to determine the interest expense. Since there is no long-term debt mentioned, the debt component will come from short-term financing, which has an interest rate of 3 percent. The capital structure includes 45% debt, so we can calculate the interest expense by multiplying the debt portion by the interest rate.

Interest Expense = Debt Portion x Interest Rate
Interest Expense = 45% x $7,000,000 x 3%
Interest Expense = $1,575,000 x 0.03
Interest Expense = $47,250

Now, we can calculate the tax-adjusted net income by subtracting the taxes and interest expense from the operating profit.

Tax-Adjusted Net Income = EBIT - (Tax Rate x EBIT) - Interest Expense
Tax-Adjusted Net Income = $0.45 million - (0.30 x $0.45 million) - $47,250
Tax-Adjusted Net Income = $0.45 million - $0.135 million - $47,250
Tax-Adjusted Net Income = $0.26575 million

Again, without the number of outstanding shares, we cannot calculate the exact EPS.

c) Recalculate a and b if short-term rates go to 7 percent:

If the short-term rates go up to 7 percent, we need to recalculate the interest expense in part b. We will use the same formula to calculate the new interest expense with the updated interest rate of 7 percent.

Interest Expense = Debt Portion x Interest Rate
Interest Expense = 45% x $7,000,000 x 7%
Interest Expense = $1,575,000 x 0.07
Interest Expense = $110,250

Now, we can recalculate the tax-adjusted net income in both parts a and b using the updated interest expense.

For part a, tax-adjusted net income = $0.45 million - (0.30 x $0.45 million) - $110,250.

For part b, tax-adjusted net income = $0.45 million - (0.30 x $0.45 million) - $110,250.

However, without the number of outstanding shares, we still cannot calculate the exact EPS for the updated scenario.

In summary, to calculate the exact EPS, we need to know the number of outstanding shares.