assume that $10 million dollars of debt replaces 625,000 shares of common stock. The intrest in the new stock is 11.25 percent what will projected earnings per share be based on the anticipated sales increase of $500,000
To calculate the projected earnings per share (EPS) based on the anticipated sales increase, we need to follow these steps:
Step 1: Determine the new number of shares after the debt-to-equity conversion.
We are given that $10 million of debt replaces 625,000 shares of common stock. This implies that for each share, $10,000,000/625,000 = $16 of debt is being substituted.
Therefore, the new number of shares can be calculated as:
(625,000 - $10,000,000/$16) = (625,000 - 625,000) = 0 shares
Step 2: Calculate the anticipated earnings based on the anticipated sales increase.
We are given that there is an anticipated sales increase of $500,000. To calculate the anticipated earnings, we need to multiply the sales increase by the net profit margin (earnings as a percentage of sales).
Since we are not provided with the net profit margin, we cannot proceed to calculate the projected earnings per share accurately. Without the net profit margin, we do not have enough information to determine the anticipated earnings.
However, if you are given the net profit margin (as a percentage), you can calculate the projected earnings per share by multiplying the anticipated earnings by the new number of shares (calculated in Step 1) and then dividing by that new number of shares.