Chapter 5 problem 5-24
Sales $5,000,000
Less: Variable expense (50% of sales) 2,500,000
Fixed expense 1,800,000
Earnings before interest and taxes (EBIT) 700,000
Interest ( 10% cost) 200,000
Earnings before taxes ( EBT) 500,000
Tax (30%) 150,000
Shares of common stock -200,000
Earnings per share $1.75
The company is currently financed with 50 percent debt and 50 percent equity (common stock, par value of value of $10.00). In order to expend the facilities, Mr. Delsing estimates a need for $2 million in additional financing. His investment banker has laid out three plans for him to consider.
1. Sell $2 million of debt at 13 percent.
2. 2. Sell $2 million of common stock at $20 per share
3. Sell 1 million of debt at 12% and $1 million of common stock at $25.00 per share.
Variable cost is expected to stay at 50 percent of sales, while fixed expenses will increase to $2,300,000 per year. No more room left for rest of prob if you can do it I can send rest.
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