You are evaluating two financing plans for your client. After meeting their CFO you gathered the...

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You are evaluating two financing plans for your client. After meeting their CFO you gathered the following information. Current operations (All $ figures are in 000 so $1,000 means $1Million) The company has $1,000 of Sales. It is estimated that the Variable costs are 10% of the revenues. The company is capital intensive and currently have Fixed costs of $600. In addition, interest expense on the current debt is $100 and the applicable tax rate is 40% Future Plans It is estimated that the future plan will result in an expected growth rate of 20% (Use that fact for part b only) The company decided to go ahead with the plan and is evaluating two possible financing plans Plan A removing all finance charges repay all the debt and finance exclusively through equity Plan B maintain the existing leverage structure Required a/ Calculate the Operating Income, Profit before tax, DOL, DFL, DCL and Net profit under both plans using this years numbers b/ Based on the fact that the expected growth rate of 20% Calculate the Operating Income, Profit before tax, DOL, DFL, DCL and Net profit under both plans c/ What would be the difference on the Earnings Per Share EPS under both plans if the company has 100,000 common shares outstanding. You are evaluating two financing plans for your client. After meeting their CFO you gathered the following information. Current operations (All $ figures are in 000 so $1,000 means $1Million) The company has $1,000 of Sales. It is estimated that the Variable costs are 10% of the revenues. The company is capital intensive and currently have Fixed costs of $600. In addition, interest expense on the current debt is $100 and the applicable tax rate is 40% Future Plans It is estimated that the future plan will result in an expected growth rate of 20% (Use that fact for part b only) The company decided to go ahead with the plan and is evaluating two possible financing plans Plan A removing all finance charges repay all the debt and finance exclusively through equity Plan B maintain the existing leverage structure Required a/ Calculate the Operating Income, Profit before tax, DOL, DFL, DCL and Net profit under both plans using this years numbers b/ Based on the fact that the expected growth rate of 20% Calculate the Operating Income, Profit before tax, DOL, DFL, DCL and Net profit under both plans c/ What would be the difference on the Earnings Per Share EPS under both plans if the company has 100,000 common shares outstanding.

Answer rating: 100% (QA)

To calculate the operating income profit before tax DOL Degree of Operating Leverage DFL Degree of Financial Leverage DCL Degree of Combined Leverage ... View the full answer