Hiltop Medical Goods is embarking on a massive expansion. Assume plans call for opening 20 new stores during the next two years. Each store is scheduled to be 30% larger than the company's existing locations, offering more toms of inventory and with more elaborate displays. Management estimates that company operations will provide $1.0 milion of the cash needed for expansion. Hiltop Medical must raise the remaining 56.5 million from outsiders Click the icon to view information on raising the additional funds) Read the requirements Requirement 1. Evahanto the affect the two financing alternatives will have on Hiltop's net income and eamings per share two years from now Begin by selecting the labels needed to analyze the effect of the alternatives on net income and to show earings per share after the expansion. Next, enter the amounts to show the effect of the borrowing alternative, then enter the amounts to show the effect of the shares of stock alternative. (For amounts with a $0 balance, make sure to enter "" in the appropriate column. Round the EPS calculation to two decimal places. Enter amounts in dollars instead of millions) Alternative 1 Alternative 2 Borrow $6.5 million Issue 250,000 shares at 3% of stock Less LOSS Requirement 2. Complete the memo to Hilltop's management discussing the advantages and disadvantages of borrowing and of issuing common stock to raise the needed cash. Which method of raising funds would you recommend? To: Management of Hilltop Medical Goods Subject: Advantages and disadvantages of borrowing versun issuing stock to raite cash for expansion The advantages and disadvantages of borrowing to raise cash for expansion are as follows: (if an input field is not uned in the tablo, leave the fald empty, do not soltct a label) Advantages Disadvantages The advantages and disadvantages of issuing stock to raise cash for expansion are as follows: (lf an input field is not used in the table, leave the field empty, do not selecta Requirement 2. Complete the memo to Hilltop's management discussing the advantages and disadvantages of borrowing and of issuing common stock to raise the needed cash Which method of raising funds would you recommend? To: Management of Hilltop Medical Goods Subject: Advantages and disadvantages of borrowing versus issuing stock to raise cath for expansion The advantages and disadvantages of borrowing to raise cash for expansion are as follows: (if an input field is not used in the table, leave the field empty, do not select a label) Advantages Disadvantages The advantages and disadvantages of issuing stock to raise cash for expansion are as follows: (If an input field is not used in the table, leave the field empty, do not select a Label Advantages Disadvantages The method of raising funds that I would recommend depends upon the goal of the company in relation to this plan If the company is looking to select an expansion plan that results in a higher earnings per share Iuld recommend company is looking for a 'sale' means of raising cash I would recommend to raise cash for expansion if the 1. Evaluate the effect the two financing alternatives will have on Hilltop's net income and earnings per share two years from now. 2. Complete the memo to Hilltop's management discussing the advantages and disadvantages of borrowing and of issuing common stock to raise the needed cash. Which method of raising the funds would you recommend? More info nd Is G ta es The board of directors is considering obtaining the $6.5 million either by borrowing at 3% or by issuing an additional 250,000 shares of common stock. This year the company has earned $5 million before interest and taxes and has 250,000 shares of $1-par common stock outstanding. The market price of the company's stock is $26.00 per share. Assume that income before interest and taxes is expected to grow by 30% each year for the next two years. The company's marginal income tax rate is 40%. th tag
