The Canterbury Coach Corporation has EBIT of $3.62 million and total capital of

Question

The Canterbury Coach Corporation has EBIT of $3.62 million and total capital of $20 million, which is 15% debt. There are 425,000 shares of stock outstanding which sell at book value. The firm pays 13% interest on its debt and is subject to a combined state and federal tax rate of 36%. Canterbury is contemplating a capital restructuring to either 30%, 45%, 60% or 75% debt.

At the current level of profitability, will more debt enhance results?
-Select-YesNoItem 1

Calculate the Net Income, ROE, EPS and the DFL at the current and proposed structures, and display your results in a systematic table. Filling in income statement and balance sheet work in thousand dollars. For example, an answer of $1.2 thousand should be entered as 1.2, not 1,200. Round ROE, EPS, DFL to two decimal places. Enter the number of shares in whole numbers, and not in thousands. Enter all amounts as positive numbers.

INCOME STATEMENT ($000) Current Proposals 15% 30% 45% 60% 75% Debt Debt Debt Debt Debt EBIT $3,620   $3,620   $3,620   $3,620   $3,620   Interest                          EBT $      $      $      $      $      Tax                          Net Income $      $      $      $      $      BALANCE SHEET ($000) Debt $      $      $      $      $      Equity                          Capital $      $      $      $      $      Shares                          Book Value per share $      $      $      $      $      ROE EPS $      $      $      $      $      DFL                   

Explanation / Answer

Income Statement ('000) Current Proposals 15% 30% 45% 60% 75% Debt Debt Debt Debt Debt EBIT $3,620 $3,620 $3,620 $3,620 $3,620 Interest 390 780 1170 1560 1950 EBT $3,230 $2,840 $2,450 $2,060 $1,670 Tax $1,162.80 $1,022.40 $882.00 $741.60 $601.20 Net Income $2,067.20 $1,817.60 $1,568.00 $1,318.40 $1,068.80 Balance Sheet ($'000) Debt $          3,000 $          6,000 $          9,000 $        12,000 $        15,000 Equity $        17,000 $        14,000 $        11,000 $          8,000 $          5,000 Capital $        20,000 $        20,000 $        20,000 $        20,000 $        20,000 Shares 425000 350000 275000 200000 125000 Book Value Per Share $40 $40 $40 $40 $40 ROE 12% 13% 14% 16% 21% EPS $            4.86 $            5.19 $            5.70 $            6.59 $            8.55 DFL 1.12 1.27 1.48 1.76 2.17

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

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