A company is planning the financing of a major expansion. It will use common stock to fund this expansion. The company currently has 300,000 shares outstanding selling at an average of $130 per share. It would sell an additional 50,000 shares to bring in an estimated $5 million. The new project is expected to raise EBIT by 18% when implemented. The company’s capital structure contains long-term debt of $10 million which pays interest of 11%. Current Income Statement Net Sales66,000,000COGS42,000,000Gross Profits24,000,000S and A Expenses9,300,000Operating Profits14,700,000Interest on Debt1,100,000EBT13,600,000Taxes at 34%4,600,000EAT9,000,000 Develop an analysis of EPS and show the effect of any dilution of earnings.Develop the same analysis for an alternative issue of $5 million of 10% preferred stock, and an alternative issue of $5 million of 9% debt.Develop specific comparative costs of all three methods and discuss your findings. .1. A company is planning the financing of a major expansion. It will use common stock to fund thisexpansion. The company currently has 300,000 shares outstanding selling at an average of $130 pershare. It would sell an additional 50,000 shares to bring in an estimated $5 million. The new projectis expected to raise EBIT by 18% when implemented. The company's capital structure contains long-term debt of $10 million which pays interest of 11%.Current Income StatementNet SalesCOGSGross ProfitsS and A ExpensesOperating ProfitsInterest on DebtEBTTaxes at 34%EAT66,000,00042,000,00024,000,0009,300,00014,700,0001,100,00013,600,0004,600,0009,000,000Develop an analysis of EPS and show the effect of any dilution of earnings.Develop the same analysis for an alternative issue of $5 million of 10% preferred stock, and analternative issue of $5 million of 9% debt.Develop specific comparative costs of all three methods and discuss your findings.

EPS: "Earning per share" By displaying the amount of money a firm produces for each share of its…

Answered: A company is planning the financing of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter4: Financial Planning And Forecasting

Section: Chapter Questions

Problem 6P

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A company is planning the financing of a major expansion. It will use common stock to fund this expansion. The company currently has 300,000 shares outstanding selling at an average of $130 per share. It would sell an additional 50,000 shares to bring in an estimated $5 million. The new project is expected to raise EBIT by 18% when implemented. The company’s capital structure contains long-term debt of $10 million which pays interest of 11%.

Current Income Statement

Net Sales	66,000,000
COGS	42,000,000
Gross Profits	24,000,000
S and A Expenses	9,300,000
Operating Profits	14,700,000
Interest on Debt	1,100,000
EBT	13,600,000
Taxes at 34%	4,600,000
EAT	9,000,000

Develop an analysis of EPS and show the effect of any dilution of earnings.
Develop the same analysis for an alternative issue of $5 million of 10% preferred stock, and an alternative issue of $5 million of 9% debt.
Develop specific comparative costs of all three methods and discuss your findings.

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1. A company is planning the financing of a major expansion. It will use common stock to fund this
expansion. The company currently has 300,000 shares outstanding selling at an average of $130 per
share. It would sell an additional 50,000 shares to bring in an estimated $5 million. The new project
is expected to raise EBIT by 18% when implemented. The company's capital structure contains long-
term debt of $10 million which pays interest of 11%.
Current Income Statement
Net Sales
COGS
Gross Profits
S and A Expenses
Operating Profits
Interest on Debt
EBT
Taxes at 34%
EAT
66,000,000
42,000,000
24,000,000
9,300,000
14,700,000
1,100,000
13,600,000
4,600,000
9,000,000
Develop an analysis of EPS and show the effect of any dilution of earnings.
Develop the same analysis for an alternative issue of $5 million of 10% preferred stock, and an
alternative issue of $5 million of 9% debt.
Develop specific comparative costs of all three methods and discuss your findings.

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