2. Suppose that in 2013, Global launches an aggressive marketing campaign that b

Question

2. Suppose that in 2013, Global launches an aggressive marketing campaign that boosts sales by 15%. However, their operating margin falls from 5.57% to 4.50%. Suppose that they have no other income, interest expenses are unchanged, price per share of Global's stock is $14 in 2012, and taxes are the same percentage of pretax income as in 2012. (a) What is Global's EBIT in 2013? (b) What is Global's net income in 2013? (c) If Global's P/E ratio and number of shares outstanding remains unchanged at 3.6 million, what is Global's share price in 2013?

Explanation / Answer

(a) Revenues in 2013 = 1.15 × 186.7 = $214.705 million

EBIT = 4.50% × 214.705 = $9.66 million (there is no other income)

(b) Net Income = EBIT – Interest Expenses – Taxes = (9.66 – 7.7) × (1 – 26%) = $1.45 million

(c) Share price = (P/E Ratio in 2012) × (EPSin 2013) = 25.2 * (1.45 /3.6)= $10.15

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.