Question
Mr. Billy J. Santos wants to invest his hard-earned money. As an initial step, he observes 2 companies he thinks best to invest in. Mr.
Mr. Billy J. Santos wants to invest his hard-earned money. As an initial step, he observes 2 companies he thinks best to invest in. Mr. Santos shortlist 2 company for his investment option and analyze their financial performance. The companies are ABC corporation and XYZ incorporated, their capital is 150,000 and 180,000 respectively.
ABC Corporations 5 year revenues are 84,000.00, 86,500.00, 89,500.00, 92,300.00 and 97,200.00. While XYZ incorporated revenues are 106,000.00, 115,800.00, 97,400.00, 98,900.00 and 98,500.00. ABC Corporation and XYZ Incorporated incurred operational expenses of 3,000 and 4,250 on the first year of the operation. Both companys expenses grow at a rate of 5% and 4% per annum respectively. The cost of capital for two company are 8% and 10% and also taxable 28%. The expected return of investment for each company is 14% and 12% respectively.
Compute for EBIT (Earnings before interest and taxes) of ABC Corporation for the following years:
a) year 1
b) year 2
c) year 3
d) year 4
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