Introduction Unit 7 is the forum in which take our applied skills and use them t

Introduction
Unit 7 is the forum in which take our applied skills and use them to address real business situations. This unit has a set of four case studies from actual business situations (no company names are used and some cases are composite events) presented for the student to read, study, and reflect. The student will have an opportunity to demonstrate their mastery of their applied learning in the discussion forum, written assignment, and learning journal.
Unit 7 uses four case studies to provide an opportunity to view, comprehensively, the applied financial skills introduced in the course. The lease structuring case applies our time-value-of-money skills to a business situation involving working capital. The “debt or equity” capital introduction case applies the financial ratio analysis skills learned early in the course to a business decision that will impact a firm’s creditors, current shareholders, and future investors. The new bond issue case demonstrates the impact that new capital introductions have on a firm’s ongoing cost of capital concerns. Finally, capital budgeting case applies the skills of time-value-of-money, net present value modeling, and expense-cost identification to a very common business decision relating to equipment replacement.
Reading Assignment
Finance Case Studies by W. R. Allman. Available at Attached
Discussion Assignment
In this week’s Written Assignment we found that the earnings per share of a company decreased if the additional capital it wanted was obtained by issuing additional shares of stock.
For your Discussion Assignment, In at least three well composed paragraphs, please explain how this phenomenon comes about. Please also discuss how this decrease in EPS would affect a company’s decision whether to issue equity (shares of stock) or debt (a bond issue) for raising capital.
Written Assignment
A company needs $35,943,750 to finance a major project in the company. The company expects that next year’s earnings from current operations and the additional earnings from the new project will be a total of $45,650,000. The company currently has 5,075,000 shares outstanding, with a price of $17.75 per share. The company’s management is assuming that any the additional shares issued to finance the project will not affect the market price of the company’s common stock.
Calculate the following:
If the $35,943,750 needed for the project is raised by selling new shares, what will the forecast for next year’s earnings per share (EPS) be?
If the $35,943,750 needed for the project is raised by selling new shares, what will the firm’s price earnings ratio (PE ratio) be?
If the $35,943,750 needed for the project is raised by issuing new debt, what will the forecast for next year’s earnings per share be? (Assume that there is no “tax shield effect” with issuing corporate debt.)
If the $35,943,750 needed for the project is raised by issuing new debt, what will the firm’s PE ratio be?
Learning Journal
During this week’s (Unit 7) Written Assignment, we found that when additional shares of stock are issued, the earnings per share decreases (assuming no change in total earnings).
For your Learning Journal, in at least three well composed paragraphs, please explain how this occurs and what the impact on a firm’s decision to raise capital by equity, as oppose to debt.