Halifax Inc. is evaluating two financing options to raise $10 million for an expansion project. Halifax...

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Finance

Halifax Inc. is evaluating two financing options to raise $10million for an expansion project. Halifax Inc. can borrow moneyfrom a bank and the interest rate will be 8%, or Halifax Inc. canissue one million common stocks for $10 per share.
The company currently has 2.5 million common shares.
Without the new financing, the projected income statement ofHalifax Inc. is shown below.
The earnings per share for Halifax Inc. are: 1.03 under publicissue and 1.95 under bank.
Determine the break-even EBIT between the two financingoptions.... given this, if Halifax Inc. expects an EBIT of $7.4million in 2017, will it be beneficial to increaseleverage?
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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3.6 Ratings (349 Votes)

Let E be the break EBIT expressed in million Case 1 Borrow money from a bank and the interest rate will be 8 EPS1 E existing interest incremental See Answer

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Halifax Inc. is evaluating two financing options to raise $10million for an expansion project. Halifax Inc. can borrow moneyfrom a bank and the interest rate will be 8%, or Halifax Inc. canissue one million common stocks for $10 per share.The company currently has 2.5 million common shares.Without the new financing, the projected income statement ofHalifax Inc. is shown below.The earnings per share for Halifax Inc. are: 1.03 under publicissue and 1.95 under bank.Determine the break-even EBIT between the two financingoptions.... given this, if Halifax Inc. expects an EBIT of $7.4million in 2017, will it be beneficial to increaseleverage?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