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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?
What else can I help you with?
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
How can one locate the EBIT (Earnings Before Interest and Taxes) on an income statement?
To locate the EBIT on an income statement, look for the line item that shows operating income or operating profit. EBIT is calculated by subtracting operating expenses from gross revenue.
Is EBIT equal to operating profit margin?
Its normally EBITDA and yes it is.
Where can I find EBIT on financial statements?
EBIT, which stands for Earnings Before Interest and Taxes, can typically be found on the income statement of a company's financial statements. It is calculated by subtracting operating expenses from gross revenue.
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.
How can one locate the EBIT (Earnings Before Interest and Taxes) on an income statement?
To locate the EBIT on an income statement, look for the line item that shows operating income or operating profit. EBIT is calculated by subtracting operating expenses from gross revenue.
Increasing interest exspense has what affect on ebit?
Increasing interest expense will decrease EBIT (Earnings Before Interest and Taxes) as it directly reduces the company's profitability by deducting the interest payment from the operating income. This results in lower EBIT margins and reduced earnings available to shareholders.
Increasing interest expense will have what effect on EBIT?
decrease it
Does EBIT include depreciation and amortization expenses?
No it doesn't include
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)
Is EBIT equal to operating profit margin?
Its normally EBITDA and yes it is.
