Colorado Equipment is evaluating two financing options to raise $10 million for an expansion project. Colorado...

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Finance

Colorado Equipment is evaluating two financing options to raise$10 million for an expansion project. Colorado Equipment can borrowmoney from a bank and the interest rate will be 8%, or ColoradoEquipment can issue one million common stocks for $10 pershare.
The company currently has 2.5 million common shares.
Without the new financing, the projected income statement ofColorado Equipment is shown below.
The earnings per share for Colorado Equipment are: 1.03 underpublic issue and 1.95 under bank.
Determine the break-even EBIT between the two financingoptions. If Colorado Equipment expects an EBIT of $7.4 million in2017, will it be beneficial to increase leverage?
Sales Revenue 30,253
Operating Expenses 14,740
Earnings from Resort Operations 15,513
Administration 2,719
Marketing/Promotion 941
Miscellaneous 302
Earnings before Interest, Depreciation & Amortization(EBITDA) 11,550
Depreciation 2,682
Amortization of Goodwill 324
Earnings before Interest & Taxes (EBIT) 8,543
Interest 2,718
Earnings before Taxes (EBT) 5,826
Taxes @ 38% .... 2214
Net Income 3,612
Dividends 1,047
Increase (Decrease) in Retained Earnings 2,564

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3.7 Ratings (315 Votes)

Sales Revenue 30253 Operating Expenses 14740 Earnings from Resort Operations 15513 Administration 2719 MarketingPromotion 941 Miscellaneous 302 Earnings before Interest Depreciation Amortization EBITDA 11550 See Answer

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Colorado Equipment is evaluating two financing options to raise$10 million for an expansion project. Colorado Equipment can borrowmoney from a bank and the interest rate will be 8%, or ColoradoEquipment can issue one million common stocks for $10 pershare.The company currently has 2.5 million common shares.Without the new financing, the projected income statement ofColorado Equipment is shown below.The earnings per share for Colorado Equipment are: 1.03 underpublic issue and 1.95 under bank.Determine the break-even EBIT between the two financingoptions. If Colorado Equipment expects an EBIT of $7.4 million in2017, will it be beneficial to increase leverage?Sales Revenue 30,253Operating Expenses 14,740Earnings from Resort Operations 15,513Administration 2,719Marketing/Promotion 941Miscellaneous 302Earnings before Interest, Depreciation & Amortization(EBITDA) 11,550Depreciation 2,682Amortization of Goodwill 324Earnings before Interest & Taxes (EBIT) 8,543Interest 2,718Earnings before Taxes (EBT) 5,826Taxes @ 38% .... 2214Net Income 3,612Dividends 1,047Increase (Decrease) in Retained Earnings 2,564