How do you calculate Net Income, Intrest Expense and Earning Per Share with diff

Question

How do you calculate Net Income, Intrest Expense and Earning Per Share with different capital structures such as 100% equity, 75% equity, 50% equity and 25% equity?

Explanation / Answer

Capital Structure Financial Market Income Statement Current MV of Equity = $4,593 Current Beta for Stock = 1.10 Current EBITDA = $1,204 Market Value of interest-bearing debt = $4,326 Current Bond Rating = A+ Current Depreciation = $0 # of Shares Outstanding = 173.768 Summary of Inputs Current Tax Rate = 35.00% Debt Value of Operating leases (if any) $0 Long Term Government Bond Rate = 6.00% Current Capital Spending= $0 Risk Premium = 6.31% Pre-tax cost of debt = 6.80% Current Interest Expense = $529 RESULTS FROM ANALYSIS Current Optimal Change D/(D+E) Ratio = 48.50% 70.00% 21.50% Implied Growth Rate Calculation Beta for the Stock = 1.1 1.72 0.62 Value of Firm = $8,919 Cost of Equity    = 12.94% 16.84% 3.89% Current WACC = 8.82% Current FCFF = $782.50 ! I am ignoring working capital AT Interest Rate on Debt = 4.45% 4.16% -0.29% Implied Growth Rate = 0.05% If this number is >your riskfree rate, I use the riskfree rate as a perpetual growth rate. WACC 8.82% 7.96% -0.86% Implied Growth Rate = 0.05% Assumes perpeutal growth Firm Value (Perpetual Growth) = $8,919 $10,988 $2,069 Value/share (Perpetual Growth) = $26.43 $38.34 $11.91 We use the following default spreads in our analysis. Change them in the input sheet if necessary: Ratings comparison at current debt ratio Rating Coverage gt and lt Spread Drop in EBITDA Current Interest coverage ratio = 2.28 AAA 3 100000 0.40% 0.00% Rating based upon coverage = A+ AA 2.5 2.99999 0.70% -5.00% Interest rate based upon coverage = 6.85% A+ 2 2.49999 0.85% -10.00% Current rating for company = A+ A 1.5 1.99999 1.00% -15.00% Current interest rate on debt = 6.80% A- 1.2 1.49999 1.30% -17.50% Drop in operating income based on current rating -10.00% BBB 0.9 1.199999 2.00% -20.00% BB 0.6 0.749999 4.00% -20.00% B+ 0.5 0.599999 5.50% -20.00% B 0.4 0.499999 6.50% -20.00% B- 0.3 0.399999 7.25% -25.00% CCC 0.2 0.299999 8.75% -40.00% CC 0.1 0.199999 9.50% -40.00% C 0.05 0.099999 10.50% -40.00% D -100000 0.049999 12.00% -50.00% Current beta= 1.10 Current Equity= $4,593 Current Depreciation= $0 Current Debt= $4,326 Current EBITDA= $1,204 Current Interest rate (Company)= 6.80% Tax rate= 35.00% Current Rating= A+ Current T.Bond rate= 6.00% Adjusted EBITDA = $1,338 WORKSHEET FOR ESTIMATING RATINGS/INTEREST RATES D/(D+E) 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% D/E 0.00% 11.11% 25.00% 42.86% 66.67% 100.00% 150.00% 233.33% 400.00% 900.00% $ Debt $0 $892 $1,784 $2,676 $3,568 $4,460 $5,351 $6,243 $7,135 $8,027 Beta 0.68 0.73 0.79 0.87 0.98 1.13 1.35 1.72 2.46 4.67 Cost of Equity 10.31% 10.62% 11.00% 11.50% 12.17% 13.10% 14.50% 16.84% 21.50% 35.49% % Drop in EBITDA 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% -10.00% -10.00% EBITDA $1,338 $1,338 $1,338 $1,338 $1,338 $1,338 $1,338 $1,338 $1,204 $1,204 Depreciation $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 EBIT $1,338 $1,338 $1,338 $1,338 $1,338 $1,338 $1,338 $1,338 $1,204 $1,204 Interest $0 $57 $114 $171 $228 $285 $342 $400 $489 $550 Taxable Income $1,338 $1,281 $1,223 $1,166 $1,109 $1,052 $995 $938 $715 $654 Tax $468 $448 $428 $408 $388 $368 $348 $328 $250 $229 Net Income $869 $832 $795 $758 $721 $684 $647 $610 $465 $425 (+)Deprec'n $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Funds from Op. $869 $832 $795 $758 $721 $684 $647 $610 $465 $425 Pre-tax Int. cov ? 23.43 11.72 7.81 5.86 4.69 3.91 3.35 2.46 2.19 Funds/Debt ? 0.93 0.45 0.28 0.20 0.15 0.12 0.10 0.07 0.05 Likely Rating AAA AAA AAA AAA AAA AAA AAA AAA A+ A+ Pre-tax cost of debt 6.40% 6.40% 6.40% 6.40% 6.40% 6.40% 6.40% 6.40% 6.85% 6.85% Eff. Tax Rate 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% COST OF CAPITAL CALCULATIONS D/(D+E) 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% D/E 0.00% 11.11% 25.00% 42.86% 66.67% 100.00% 150.00% 233.33% 400.00% 900.00% $ Debt $0 $892 $1,784 $2,676 $3,568 $4,460 $5,351 $6,243 $7,135 $8,027 Cost of equity 10.31% 10.62% 11.00% 11.50% 12.17% 13.10% 14.50% 16.84% 21.50% 35.49% Cost of debt 4.16% 4.16% 4.16% 4.16% 4.16% 4.16% 4.16% 4.16% 4.45% 4.45% Cost of Capital 10.31% 9.97% 9.64% 9.30% 8.97% 8.63% 8.30% 7.96% 7.86% 7.56% 0 0 0 0 0 0 0 1 0 0

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