The Strategy For Staples On The Company 's Earnings Per Share

1127 WordsApr 25, 20175 Pages
The following analysis explores the effect of the chosen strategy for Staples on the company’s earnings per share. Several assumptions were made in the Net Present Value Analysis that are further analyzed here. The interest rate used was an average rate for 2016, the most recent year ended. The boom amounts assume a 7.5% increase in EBIT where the Recession amounts assume a 12.5% reduction in EBIT. This is because the firm and industry are presently quite susceptible to poor economic conditions. 100% Debt Financing This option would see Staples fund its new strategy using only debt financing. This option had the lowest projected Earnings per Share compared to all other methods. This is both because of the interest expense…show more content…
100% Equity Financing This is the best financing options for Staples to use to fund their new strategy. This option sees the highest net income figures in all three scenarios out of all five debt-equity mixes assessed. This option would have Staples raise $478,000,000 by issuing 48,380,567 shares of common stock. Because of dilution of stock ownership, EPS figures remain the same as in the previous two examples, but the firm is retaining the most money in this instance, making this the best option, as well as the chosen option. Income Statement Projections Sales: Sales were adjusted to count for the closing of 24 stores in Latina and South America. Same store sales were projected to increase by 1.25% per year from their 2016 levels. This seemingly modest increase is hugely beneficial to Staples, though, because the firm has seen declining sales figures for the past five years. Even though sales are not projected to increase to 2015levels under this plan, it is important to note that a major reason for the drop from 2015 to 2016 was due to the discontinuance of operations in Europe. By the second year of the selected strategy, Staples is projected to have sales above the 2016 levels and begin trending in a positive direction there. Cost of Goods Sold: Cost of Goods Sold is inextricably linked to sales, and so the most effective way to project it is to use an average from years past. For the past five years,

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