ASSIGNMENT: EPS$/$EBIT Analysis

Please fill in the table after reviewing the EPS$/$EBIT material in Chapter $8$ of our text.

Company B needs to raise $$1$B$.$ The company senior executives are not concerned about a

recession. There are basically two future earnings expectations. If business activity stays the

same, Company B will earn $$800$ million dollars before interest and taxes. If business activity

increases, it is projected that Company B will earn $$1\mathrm{.}2B$ dollars before interest and taxes.

You need to make a recommendation regarding the best way to raise the $$1B.$ Should the

company issue additional stock or should the company borrow the money? Once you have

calculated the necessary figures and compared your results, make a recommendation to

Company B$\text{'}$s Board of Directors.

My recommendation is that Company B should $\_$

Helpful Hints

You only pay interest on the amount you would borrow.

The number of shares outstanding would change under Common Stock Financing.

If the EPS difference is $5$ cents or less or if EPS fluctuate from one condition to the other, your

answer based on this analysis only would be "unable to determine."