Delsing Canning Company is considering an expansion of its facilities. Its current income statement is as follows: Sales $ 6,300,000 Variable costs (50% of sales) 3, 150,000 Fixed costs 1,930,000 Earnings before interest and taxes (EBIT) $1,220,000 Interest (10% cost) 460,000 Earnings before taxes (EBT) $760,000 Tax (35%) 266,000 Earnings after taxes (EAT) $ 494,000 Shares of common stock 330,000 Earnings per share $ 1.50 The company is currently financed with 50 percent debt and 50 percent equity (common stock, par value of $10). In order to expand the facilities, Mr. Delsing estimates a need for $3.3 million in additional financing. His investment banker has laid out three plans for him to consider: Sell $3.3 million of debt at 9 percent. Sell $3.3 million of common stock at $15 per share. Sell $1.65 million of debt at 8 percent and $1.65 million of common stock at $20 per share. Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to $2,430,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1 million per year for the next five years. Delsing is interested in a thorough analysis of his expansion plans and methods of financing.He would like you to analyze the following:d. Compute EPS under all three methods of financing the expansion at $7.3 million in sales (first year) and $10.2 million in sales (last year). Note: Round your answers to 2 decimal places.
Delsing Canning Company is considering an expansion of its facilities. Its current income statement is as follows: Sales $ 6,300,000 Variable costs (50% of sales) 3, 150,000 Fixed costs 1,930,000 Earnings before interest and taxes (EBIT) $1,220,000 Interest (10% cost) 460,000 Earnings before taxes (EBT) $760,000 Tax (35%) 266,000 Earnings after taxes (EAT) $ 494,000 Shares of common stock 330,000 Earnings per share $ 1.50 The company is currently financed with 50 percent debt and 50 percent equity (common stock, par value of $10). In order to expand the facilities, Mr. Delsing estimates a need for $3.3 million in additional financing. His investment banker has laid out three plans for him to consider: Sell $3.3 million of debt at 9 percent. Sell $3.3 million of common stock at $15 per share. Sell $1.65 million of debt at 8 percent and $1.65 million of common stock at $20 per share. Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to $2,430,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1 million per year for the next five years. Delsing is interested in a thorough analysis of his expansion plans and methods of financing.He would like you to analyze the following:d. Compute EPS under all three methods of financing the expansion at $7.3 million in sales (first year) and $10.2 million in sales (last year). Note: Round your answers to 2 decimal places.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Delsing Canning Company is considering an expansion of its facilities. Its current income statement is as follows: Sales $ 6,300,000 Variable costs (50% of sales) 3, 150,000 Fixed costs 1,930, 000
Earnings before interest and taxes (EBIT) $ 1,220, 000 Interest (10% cost) 460,000 Earnings before taxes (EBT) $760,000 Tax (35 %) 266, 000 Earnings after taxes (EAT) $ 494, 000 Shares of
common stock 330, 000 Earnings per share $ 1.50 The company is currently financed with 50 percent debt and 50 percent equity (common stock, par value of $10). In order to expand the facilities,
Mr. Delsing estimates a need for $3.3 million in additional financing. His investment banker has laid out three plans for him to consider: Sell $3.3 million of debt at 9 percent. Sell $3.3 million of
common stock at $15 per share. Sell $1.65 million of debt at 8 percent and $1.65 million of common stock at $20 per share. Variable costs are expected to stay at 50 percent of sales, while fixed
expenses will increase to $2,430,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $1 million per year for the next five years. Delsing
is interested in a thorough analysis of his expansion plans and methods of financing. He would like you to analyze the following:d. Compute EPS under all three methods of financing the expansion
at $7.3 million in sales (first year) and $10.2 million in sales (last year). Note: Round your answers to 2 decimal places.
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