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The MAX Corporation is planning a $4 million expansion this year. The expansion can be financed by issuing either common stock or bonds. The new common stock can be sold for $60 per share. The bonds can be issued with a 12% coupon rate. The firm's existing shares of preferred stock pay dividends of $2.00 per share. The company's corporate income tax rate is 46%. The company's balance sheet prior to expansion is as follows: MAX Corporation Current assets $ 2,000,000 Fixed assets 8,000,000 Total assets $10,000,000 Current liabilities $ 1,500,000 Bonds: (8%, $1,000 par value) 1,000,000 (10%, $1,000 par value) 4,000,000 Preferred stock: ($100 par value) 500,000 Common stock: ($2 par value) 700,000 Retained earnings 2,300,000 Total liabilities and equity $10,000,000 a. Calculate the indifference level of EBIT between the two plans. b. If EBIT is expected to be $3 million, which plan will result in higher EPS?
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How do you calculate the break-even point for EBIT?
How to calculate the break even of EBIT
Calculate two ebit-eps coordinates for each of the structures by selecting any two ebit values and finding their associated eps values?
Net income + income tax + interest expense or Add together all expenses, then - interest expense - income tax
Is EBIT equal to operating profit margin?
Its normally EBITDA and yes it is.
Objective ebit eps analysis?
If a company need to raise additional money by issuing either debt,preffered stock & common stock.Which alternative will allow company to have highest EPS? This is called EBIT-EPS analysis.In this ,company will calculate EPS at various level of sales(and EBIT) by considering different alternatives. you can analys it by taking an example: if comapny need $50000 additional investment, having $10000 of EBIT & 2000 of shares.how it can raise funds either go for common stock by issuing 1000 more equity of $50 each or go for debt @4% interest or go for preferred stock at 7% dividend........ If company raise by common stock , number of shares will increase to 3000 and EPS will come 2.17,if it go for debt number of shares remains constant and EPS come at 2.60 and if company go for preffered stock EPS come at 1.43......this way at different levels of EBIT ,what is the EPS by considering different alternatives? So that, company comes to know which is the best alternative for company to fulfill additional capital requirement?
What is aFormula Return on long term funds?
EBIT Return on long term funds = ------------------- x 100 Long term funds
How do you calculate the break-even point for EBIT?
How to calculate the break even of EBIT
What does EBIT mean in Finance and how to calculate it?
EBIT means "Earnings Before Interests and Taxes"
EBIT-EPS Analysis and diagram?
ebit diagram
What is leverage and how do you calculate it?
Leverage means to get more with little force as in physics. But in accounting it tells us how we can know from our sales that how much EBIT (earnings before interest and taxes) will be. In acc it is called degree of leverage and is calculated as DOL= contribution margin/EBIT For exp, if DOL=2 It means if we increase sale by 5% EBIT will increase by (2*5%) 10%. ok dear pray for me
Calculate two ebit-eps coordinates for each of the structures by selecting any two ebit values and finding their associated eps values?
Net income + income tax + interest expense or Add together all expenses, then - interest expense - income tax
How do you calculate the break even point for EBIT?
Breakeven point = Fixed cost / contribution margin ratio contribution margin ratio = sales - variable cost / sales.
Increasing interest expense will have what effect on EBIT?
decrease it
How do you find ebit?
Ebit is found by looking at your bottom line (i.e. net income) on an income statement, and then adding back the interest expense and income tax expense (if applicable, flow through entities do not pay taxes). The reason for EBIT is to tell the interested party how effective a business is at doing what it is supposed to do by factoring out non-operational expenses. Another variant of EBIT is EBITDA which is even leaner, and additionally factors out depreciation and amortization. (I answered)
Does EBIT include depreciation and amortization expenses?
No it doesn't include
Is EBIT equal to operating profit margin?
Its normally EBITDA and yes it is.
What formula would you use to calculate the net profit margin?
You take the Earning before interest and taxes (EBIT)/sales=Operating profit margin
What is the typical Price to Earnings ratio for a service business?
about five to six times EBIT
