Perform an EPS/EBIT Analysis for Hershey Company

An EPS/EBIT analysis is one of the most widely used techniques for determining the extent that debt or stock should be used to finance strategies to be implemented. This exercise can give you practice performing EPS/EBIT analysis.

Instructions

Amount Hershey needs: $1 billion to build four new manufacturing plants outside the United States Interest rate: 3% Tax rate: 430/1,251 = 34% Stock price: $106 as of January 1, 2015

Number of shares outstanding: 220 million

1. Prepare an EPS/EBIT analysis for Hershey. Determine whether Hershey should use all debt, all stock, or a 50-50 combination of debt and stock to finance this market-development strategy.

2. Develop an EPS/EBIT chart after completing the EPS/EBIT table.

3. Next, give a 3-sentence recommendation for Hersheys CFO, Mr. David Tacka.

NOTE: Use example in picture. There is no upper and lower range for EBIT, just one number.