EBIT-EPS analysis is used to examine the effect of alternative plans of capital financing on the firm's earnings per share (EPS), assuming a range of values for the firm's level of earnings before interest and taxes (EBIT). The results can be generated and presented using either a mathematical or a graphical solution. What information is needed to perform an EBIT-EPS analysis? Check all that apply. Projections regarding the firm's future EBIT levels The number of common shares outstanding and, if appropriate, the expected future preferred stock dividend distribution under the current capital structure and each of the proposed financing plans The firm's degree of operating leverage (DOL) Knowledge regarding industry standards for the average firm in the industry An important place of information produced by the EBIT-EPS analysis is the level of EBIT at which two possible financing plans generated the same EPS, such that a decision marker would be indifferent between the two plans. Consider case of Alexander Enterprises Inc. Alexander Enterprises Inc. is an unlevered firm currently earning an EBIT of $ 10 million, with 3 million shares of common stock outstanding and a tax rate of 40%. In of making a major acquisition, Alexander is evaluating whether to finance its future growth using the sale of $20 million of new 10% bonds (plan 1) or the issuance of 2 million new shares of common stock at $10 per share (Plan 2). The firm's EBIT-EPS indifference point corresponds to an EBIT of and an EPS of Earlier today, Alexander's CFO and her staff developed two postacquisition forecasts of the firm's expected EBIT. If the economy and the acquisition are expected to perform poorly. Alexander's EBIT is expected to be $3 million, but if the economy and the acquisition are expected to perform well, the EBIT is expected to be $15 million. One of the staff members used these EBIT data and the corresponding EPS value to generate the following EBIT-EPS graph. Examine the graph and use it two answer the questions that follow. EBIT-EPS analysis is used to examine the effect of alternative plans of capital financing on the firm's earnings per share (EPS), assuming a range of values for the firm's level of earnings before interest and taxes (EBIT). The results can be generated and presented using either a mathematical or a graphical solution. What information is needed to perform an EBIT-EPS analysis? Check all that apply. Projections regarding the firm's future EBIT levels The number of common shares outstanding and, if appropriate, the expected future preferred stock dividend distribution under the current capital structure and each of the proposed financing plans The firm's degree of operating leverage (DOL) Knowledge regarding industry standards for the average firm in the industry An important place of information produced by the EBIT-EPS analysis is the level of EBIT at which two possible financing plans generated the same EPS, such that a decision marker would be indifferent between the two plans. Consider case of Alexander Enterprises Inc. Alexander Enterprises Inc. is an unlevered firm currently earning an EBIT of $ 10 million, with 3 million shares of common stock outstanding and a tax rate of 40%. In of making a major acquisition, Alexander is evaluating whether to finance its future growth using the sale of $20 million of new 10% bonds (plan 1) or the issuance of 2 million new shares of common stock at $10 per share (Plan 2). The firm's EBIT-EPS indifference point corresponds to an EBIT of and an EPS of Earlier today, Alexander's CFO and her staff developed two postacquisition forecasts of the firm's expected EBIT. If the economy and the acquisition are expected to perform poorly. Alexander's EBIT is expected to be $3 million, but if the economy and the acquisition are expected to perform well, the EBIT is expected to be $15 million. One of the staff members used these EBIT data and the corresponding EPS value to generate the following EBIT-EPS graph. Examine the graph and use it two answer the questions that follow
