Caso 3 Y 4

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CASE f t r 3 it it :t :r le Glen Mount Furniture Company :0 :? Iy 8, es ~e on er e lnt la. ts) Ich Furniture magnate Carl Thompson couldn 't believe the amount of pressure security analysts could put on a finn. The Glen Mount Furniture Company was a leading manufacturer of fine home furnishings and distributed its product directly to department stores, independent home furnishing retailers, and a few regional furniture chains. The firm specialized in bedroom, dining room, and living room furniture and had three plants in North Carolina and two in Virginia, Its home officewas in High Point, North Carolina. In a recent presentation to the Atlanta chapter of the Financial Analysts Federation, Carl Thompson barely had taken a bite…show more content…
. . . . $ 4,400,000 150,000 950,000 5,500,000 Long-terrn liabilities Bonds payable, 10.625% . . 12,000,000 Stockholders ' equity Common stock, $1 par value, 2,000,000 shares Capital in excess of par Retained earnings Total stockholders ' equity Totalliabilities and stockholders ' equity . . . . . . 2,000,000 8,000,000 13,000,000 23,000,000 40500000 Figure 3 GLEN MOUNT FURNITURE COMPANY Abbreviated Income Statement For the Year Ended December 31, 2010 Sales Less: Fixed Costs Less: Variable Costs (58% of sales) Operating income (EBIT) Less: lnterest Earnings before taxes (EBT) Less: Taxes (34%) Earnings after taxes (EAT) Shares Earnings per share . . . . $45,000,000 12,900,000 26,100,000 $ 6,000,000 1,275,000 $ 4,725,000 1,606,500 $ 3,118,500 2,000,000 $ 1.56 14 Required Case 3 1. Project earnings per share for 2011 assuming that sales increase by $500,000. Use Figure 3 as the model for the calculation. Further assume that the capital structure is not changed. 2. By what percent did eamings per share increase from 2010 to 2011 ? 3. Now assume that $10 million of debt replaces 625,000 shares of common stock as described in the case. The interest on the new debt will be 11.25 percent. What will projected eamings per share be for 2011 based on the anticipated sales increase of $500,000? 4. Based on your answer to question 3, by what percent would eamings per share increase from 2010 to 2011 ? 5.

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