How do I perform an EPS/EBIT analysis of McDonalds with the following figures: M
ID: 406843 • Letter: H
Question
How do I perform an EPS/EBIT analysis of McDonalds with the following figures: McDonald's needs to raise 1 billion to expand into Africa. Should they use all debt, all stock or 50/50 to finance. Tax rate is 38 percent, 5% interest rate. Their stock price is $50 per share with an annual dividend of $0.30 per share of common stock. The EBIT range for 2010 is $6.332 billion and $9 billion. A total of 1 billion shares of common stock are outstanding. How do I perform an EPS/EBIT analysis of McDonalds with the following figures: McDonald's needs to raise 1 billion to expand into Africa. Should they use all debt, all stock or 50/50 to finance. Tax rate is 38 percent, 5% interest rate. Their stock price is $50 per share with an annual dividend of $0.30 per share of common stock. The EBIT range for 2010 is $6.332 billion and $9 billion. A total of 1 billion shares of common stock are outstanding.Explanation / Answer
$ Billion Scenario Particulars Common stock financing Debt Financing 50:50 EBIT 6.332 7.67 9 6.332 7.67 9 6.332 7.67 9 Interest 0 0 0 0.05 0.05 0.05 0.025 0.025 0.025 EBT 6.33 7.67 9.00 6.28 7.62 8.95 6.31 7.65 8.98 Taxes 2.41 2.91 3.42 2.39 2.90 3.40 2.40 2.91 3.41 EAT 3.93 4.76 5.58 3.89 4.72 5.55 3.91 4.74 5.56 # no of shares 1.02 1.02 1.02 1 1 1 1.01 1.01 1.01 EPS 3.85 4.66 5.47 3.89 4.72 5.55 3.87 4.69 5.51 EPS/EBIT 0.61 0.61 0.61 0.62 0.62 0.62 0.61 0.61 0.61 The EPS/EBIT is high in case of full Debt finance which is advisable as the cost of Debt after Tax is less than the cost of equity.
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