Purpose

exercise 8c

Perform an EPS/EBIT Analysis for Hershey Company

An EPS/EBIT analysis is one of the most widely used techniques for determining the extent that debt or stock should be used to finance strategies to be implemented. This exercise can give you practice performing EPS/EBIT analysis.

Instructions

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2. 3.

Amount Hershey needs: $1 billion to build four new manufacturing plants outside the United States Interest rate: 3% Tax rate: 430/1,251 = 34% Stock price: $106 as of January 1, 2015

Number of shares outstanding: 220 million

Prepare an EPS/EBIT analysis for Hershey. Determine whether Hershey should use all debt, all stock, or a 50-50 combination of debt and stock to finance this market-development strategy. Develop an EPS/EBIT chart after completing the EPS/EBIT table. Next, give a 3-sentence recommendation for Hersheys CFO, Mr. David Tacka.

ART 1 OVERVIEW OF STRATEGIC MANAGEMENT Balance sheets (in thousands) EXHIBIT 4 Hershey's 2014 374,854 97,13 Assets Cash and Cash Equivalents 596,940 Short-Term Investments 801,036 Accounts Receivable-Trade (Net) 100,515 Inventories 276,57 Deferred Income Taxes 2,247,047 Prepaid Expenses and Other 2.151,90 Total Current Assets 792,955 Net Property, Plant, and Equipment 294,84 Goodwill 142,772 Other Intangibles Other Assets 5,629,516 Total Assets Liabilities and Stockholders' Equity 635,501 Short-Term Borrowings 482,017 Accounts Payable 813,513 Accrued Liabilities 4.616 Accrued Income Taxes 935,647 y Total Current Liabilities ,548,963 2 y Long-Term Debt 526,003 Other Long-Term Liabilitie Deferred Income Taxes 99.373 Total Liabilities 4,109,986 Stockholders' Equity Preferred stock shares issued none in 2014 and 2013 Common stock, shares issued: 299,281,967 in 2014 and 299,281,527 in 2013 Class B common stock, shares issued: 60,619.777 in 2014 and 60,620,527 in 2013 Additional paid-in capital Retained earnings 754,186 Treasury stock: 138,856,786 in 2014 and 136,007,023 n 2013 5,860,784 (5,161,236) Accumulated other comprehensive lo Stockholders' equity (358,573) Noncontrolling interests in subsidiaries 1,455,062 Total stockholders' equity Total liabilities and stockholders' equity 519,530 Source: Hershey's 2014 Fonn 10k, p. 47. s 5,629,516/ Competitors chocolate industry is dominated by fi 2013 1 477,912 659,54 52,511 178,862 2,487,334 1,805,345 576,56 195,244 293,004 5,357,488 166,875 461,514 699,722 79,9 1,408,022 795.142 434,068 104,204 3,741,436 664,944 5,454,286 (4,707,730) (166,567 1,604,834 11.218 616,052 5,357,488 EXHIB Produc USA CI USA N Globo Candy Source. rou Lind Mo EXH Emp Rev Rev Ne Mau Op Soure Nest Hea of 9 cust But and can com An tin its co cu