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    $ / % How To Calculate It Calculation: T Otal Liabilities Interest Expenses

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    Luisa Raigozo
    This document analyzes different capital structure options for obtaining $1 billion in funding to implement a new corporate strategy through EPS/EBIT analysis. It examines financing through 100% equity, 100% debt, and a 50% equity/50% debt split. It calculates the EPS under pessimistic, realistic, and optimistic EBIT projections for each option. The recommendation is for 100% equity financing since it generates the highest EPS across all EBIT levels and its EPS increases more slowly than the other options as EBIT rises.

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    $ / % How To Calculate It Calculation: T Otal Liabilities Interest Expenses

    Uploaded by

    Luisa Raigozo
    202 views2 pages
    This document analyzes different capital structure options for obtaining $1 billion in funding to implement a new corporate strategy through EPS/EBIT analysis. It examines financing through 100% equity, 100% debt, and a 50% equity/50% debt split. It calculates the EPS under pessimistic, realistic, and optimistic EBIT projections for each option. The recommendation is for 100% equity financing since it generates the highest EPS across all EBIT levels and its EPS increases more slowly than the other options as EBIT rises.

    Original Title

    EPS_ EBIT ANALYSIS Hersheys

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    This document analyzes different capital structure options for obtaining $1 billion in funding to implement a new corporate strategy through EPS/EBIT analysis. It examines financing through 100% equity, 100% debt, and a 50% equity/50% debt split. It calculates the EPS under pessimistic, realistic, and optimistic EBIT projections for each option. The recommendation is for 100% equity financing since it generates the highest EPS across all EBIT levels and its EPS increases more slowly than the other options as EBIT rises.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    202 views2 pages

    $ / % How To Calculate It Calculation: T Otal Liabilities Interest Expenses

    Uploaded by

    Luisa Raigozo
    This document analyzes different capital structure options for obtaining $1 billion in funding to implement a new corporate strategy through EPS/EBIT analysis. It examines financing through 100% equity, 100% debt, and a 50% equity/50% debt split. It calculates the EPS under pessimistic, realistic, and optimistic EBIT projections for each option. The recommendation is for 100% equity financing since it generates the highest EPS across all EBIT levels and its EPS increases more slowly than the other options as EBIT rises.

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    EPS/ EBIT ANALYSIS

    TUSA REMIX 2.0

    For certain strategies to be successful, additional capital is sometimes required that exceeds the
    net profit from operations or sales. Two sources that provide us with capital are debt or equity.
    If the strategy is to be implemented, it is necessary to determine if there is an appropriate
    combination of debt and equity in the capital structure of a company.
    EPS/EBIT analysis is used to determine whether debt, equity, or a combination of both is the
    best alternative to obtain capital in order to implement the strategies.

    $/% How to calculate it Calculation

    Ammount needed $1.000.000.000


    Interest expenses 83532
    Interest rate 2% T otal liabilities
    × 100 4010613 × 100 = 2, 082%
    T ax expenses 459131
    Tax rate 35% EBT
    × 100 1306043 × 100 = 35%

    Stock price on $106.00 Internet


    January 1, 2015

    # Shares outstanding 220M Internet

    EBIT on January 1, $1.389.575 Gross profit - 3336166 − 1946591


    2015 Operating expenses

    EBIT-Recession $1.000.000 Prediction


    prediction

    EBIT- Economical $2.000.000 Prediction


    boom prediction

    The income statement, the balance sheet and the EPS/EBIT Analysis, you will find them
    in the following sheet.

    Recommendations:
    The Hesheys chart indicates that EPS values are higher for the 100 percent common stock
    option at all EBIT levels. The graph also reveals that EPS values for the 100 percent stock
    option increase more slowly than the other financing options as EBIT levels increase. Therefore,
    our recommendation is that the 100 percent stock option be used, because as much as it may
    not grow as fast, its EPS values are noticeably higher. In conclusión for applying the strategy of
    building four new manufacturing plants outside the USA, you should be financed by the 100
    percent stock option.
    1 Complete Part II to Construct the EPS/EBIT Charts

    Common Stock Financing Debt Financing


    Pessimistic Realistic Optimistic Pessimistic Realistic Optimistic
    Return to Part II
    EBIT $1.000.000 $1.389.575 $2.000.000 $1.000.000 $1.389.575 $2.000.000
    Interest 0 0 0 20.827.739 20.827.739 20.827.739
    EBT 1.000.000 1.389.575 2.000.000 19.827.739 19.438.164 18.827.739
    Taxes 351.544 488.496 703.087 6.970.314 6.833.361 6.618.770
    EAT 648.456 901.079 1.296.913 12.857.425 12.604.803 12.208.969
    # Shares 29.433.962 29.433.962 29.433.962 20.000.000 20.000.000 20.000.000
    EPS $0,02 $0,03 $0,04 ($0,64) ($0,63) ($0,61)
    Amount Needed $1.000.000.000
    Interest Rate 2%
    Stock 50% Debt 50% Tax Rate 35%
    Pessimistic Realistic Optimistic # Shares Outstanding 20000000,0
    EBIT $1.000.000 $1.389.575 $2.000.000 Additional Shares Outstanding Needed 9433962,26
    Interest 10.413.869 10.413.869 10.413.869 Stock Price $106,00
    EBT 9.413.869 9.024.294 8.413.869
    Taxes 3.309.385 3.172.433 2.957.842
    EAT 6.104.484 5.851.862 5.456.028
    # Shares 24.716.981 24.716.981 24.716.981
    EPS ($0,25) ($0,24) ($0,22)

    $0,10

    $0,00
    $1.000.000 $1.389.575 $2.000.000
    ($0,10)

    ($0,20)
    Common Stock Financing
    ($0,30) Debt Financing
    Stock 50% Debt 50%
    ($0,40)

    ($0,50)

    ($0,60)

    ($0,70)

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