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.

Addition to EBIT on new investment is $1b

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?

Use the template provided below to complete the steps.

EPS/EBIT Analysis

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?