As the Financial vice president for Bear Enterprises, you have the following inf

Question

As the Financial vice president for Bear Enterprises, you have the following information:                                                                                                         

Expected net income after tax next year before new financing : $60,000,000

Sinking Fund payments due next year on existing debt: $20,000,000

Interest due next year on existing debt $18,000,000

Conpany Tax rate                            25%

Common Stock Price, per share               $17

Common Shares outstanding: 22,000,000

For next year assume the firm raises $60 Million of new debt at an interest rate of 9 percent.

Calculate Bear's EBIT

$38.50

$98.00

$22.55

$61.89

a.

$38.50

b.

$98.00

c.

$22.55

d.

$61.89

Explanation / Answer

Answer: B EBIT $98

EBIT (millions) 98000000/1000000 =$98 millions

Earning After Tax 60000000 Add Tax @ 25% 20000000 Earning before Tax 600000/(1-0.25) 80000000 Add Interst due 18000000 EBIT 98000000

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