SCENARIO #2: 10 points Complete the EPS/EBIT Analysis for the XYZ Company by det
ID: 2818108 • Letter: S
Question
SCENARIO #2: 10 points Complete the EPS/EBIT Analysis for the XYZ Company by determining the EPS based on the following a 100% Debt financing b.100% Stock financing c. 50/50 Debt Stock Combination Input Data Amount of capital needed EBIT Interest Rate Tax Rate Stock Price #Shares outstanding The Number S75 million 15 million ercent 35 percent S75 250 million 100% Debt 100% Stock 50/50 Debt Stk Combo SEBIT SINTEREST SEBT STAXES SEAT #SHARES SEPS QUESTION-scenario #2: 1. Which financing is BEST for the XYZ Company? ExplainExplanation / Answer
A. 100% debt financing :
required funds is $75,000,000
EBIT : 15,000,000
INTEREST : 6,000,000
EBT : 9,000,000
TAX : 350,000
PAT : 5,850,000
EPS: PAT/ NUMBER OF SHARES OUTSTANDING
EPS: 5,850,000/ 250,000,000
= 0.0234
B. WITH 100% EQUITY FINANCING :
EBIT : 15,000,000
INTERETS : NIL
EBT : 15,000,000
TAX : 5,250,000
PAT : 9,750,000
NUMBER OF SHARES OUTSTANDING : NEW SHARES ISSUED : 75,000,000/75 = 1,000,000
THEREFORE, TOTAL NUMBER OF SHARES OUTSTANDING IS : 25,1000,000
EPS = 9750,000/ 251000,000 = 0.0388
NEXT 50% EQUITY ,50% DEBT
EBIT : 15,000,000
INTEREST : 3,000,000
EBT ; 12,000,000
TAX : 42,000,00
NET INCOME : 7800,000
NUMBER OF SHARES OUTSTANDING : 75,000,000/2 =37500000/75 = 500000
THEREFORE, TOTAL NUMBER OF SHARES OUTSTANDING IS : 25,05,00000
EPS = 7800,000/ 25,05,00000 = 0.0311
SO, THE ALL EQUITY OPTION IS THE MOST FAVOURABLE OPTION. AS THE EPS IS HIGHEST IN THIS OPTION.
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