Question
The Tanenbaum Tea Company wants to show the stock market an EPS of $3 per share, but doesn't expect to be able to improve profitability
The Tanenbaum Tea Company wants to show the stock market an EPS of $3 per share, but doesn't expect to be able to improve profitability over what is reflected in the financial plan for next year. The plan is partially reproduced below.
| Tanenbaum Tea Company | ||||
| Financial Projection 20X1 | ||||
| ($000) | ||||
| EBIT | $18,750 | Debt | $13,000 | |
| Interest (@12%) | 1,560 | Equity | 97,000 | |
| EBT | $17,190 | Capital | $110,000 | |
| Tax (38%) | 6,532 | |||
| EAT | $10,658 | Number of shares = | 3,700,000 | |
Tanenbaum's stock sells at book value.
Will trading equity for debt help the firm achieve its EPS goal?
What debt level will produce the desired EPS? Enter your answer in whole thousands. For example, an answer of $1.2 thousand should be entered as 1.2, not 1200. If there is no answer leave the blank field. Do not round intermediate calculations. $ thousand
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Finance And Financial Intermediation
Authors: Harold L. Cole
1st Edition
0190941707, 978-0190941703
