Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Perform an EPS/EBIT Analysis for the Hershey Company Problem Statement: Hershey needs to raise $1Bn to build four new manufacturing plants outside the United States

Perform an EPS/EBIT Analysis for the Hershey Company

Problem Statement:

Hershey needs to raise $1Bn to build four new manufacturing plants outside the United States to implement their strategic plan. The Board of Directors and Executive Leadership team are evaluating how best to raise this capital. Complete an analysis to determine the best solution.

Currently, Hershey has the following input for the analysis:

Interest Rate: 3%

Tax Rate: 34%

Stock Price (January 2015) $106

# of Shares Outstanding: 220Mn

EBIT in 2014 was $1.3Bn so evaluate options based on $1.0Bn and $2.0Bn. For the evaluation, they will consider 100% stock, 100% debt and 50/50 combination.

Prepare an EPS/EBIT analysis for Hershey using the above information.

What recommendation would you give the Board on the source of the capital required?

100% Common Stock Financing

Recession

Normal

Boom

EBIT

Interest

EBT

Taxes

EAT

# Shares

EPS

100% Debt Financing

Recession

Normal

Boom

EBIT

Interest

EBT

Taxes

EAT

# Shares

EPS

50% Stock / 50% Debt Financing

Recession

Normal

Boom

EBIT

Interest

EBT

Taxes

EAT

# Shares

EPS

What recommendation would you give the Board for financing this project?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting For Undergraduates

Authors: Christensen, Theodore E. Hobson, L. Scott Wallace, James S.

1st Edition

1618531123, 9781618531124

More Books

Students also viewed these Accounting questions