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Homework answers / question archive / Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $132,000

Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $132,000

Finance

Sterling Optical and Royal Optical both make glass frames and each is able to generate earnings before interest and taxes of $132,000. The separate capital structures for Sterling and Royal are shown here:

 

Sterling Royal Debt @ 12% $ 660,000 Debt @ 12% $ 220,000 Common stock, $5 par   440,000 Common stock, $5 par   880,000 Total $ 1,100,000 Total $ 1,100,000 Common shares   88,000 Common shares   176,000

a. Compute earnings per share for both firms. Assume a 25 percent tax rate. (Round your answers to 2 decimal places.)

  

 

 

 

 

 

b. In part a, you should have gotten the same answer for both companies' earnings per share. Assuming a P/E ratio of 22 for each company, what would its stock price be? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

  

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