# Eps Ebit

Topics: Financial ratio, Generally Accepted Accounting Principles, Stock Pages: 2 (499 words) Published: August 26, 2012
BUS 411 Assignment 5 (LAST ONE) Due March 19 @ 12:35 PM

PERFORMING AN EPS/EBIT ANALYSIS FOR MCDONALD’S PURPOSE: An EPS/EBIT analysis is one of the most widely used techniques for determining the extent that debt and/or stock should be used to finance strategies to be implemented. This exercise can give you practice performing EPS/EBIT analysis. INSTRUCTIONS: Let’s say McDonald’s needs to raise \$1.1 billion to expand into Africa. Determine whether McDonald’s should have used all debt, all-stock, or a 50-50 combination of debt and stock to finance 4this market-development strategy. Assume a 35% tax rate, 4% interest rate, McDonald’s stock price of \$55 per share, and an annual dividend of \$0.30 per share of common stock. The EBIT range for 2010 is between \$6.332 billion and \$9 billion. A total of 1 billion shares of common stock are outstanding. Develop an EPS/EBIT chart to reflect your analysis. TEACHING NOTES: Amount needed to raise: \$1.1 billion Interest rate: 4% Tax rate: 35% Stock price: \$55 Annual dividend: \$0.30 per share Number of shares outstanding: 1 billion 2010 EBIT range: \$6.332 billion to \$9 billion Common Stock Financing Recession EBIT Interest EBT Taxes EAT # of Shares

Debt Financing Recession \$6.33 Normal \$7.67 Boom \$9

Combination Recession \$6.33 Normal \$7.67 Boom \$9

Normal \$7.67

Boom \$9

\$6.33

EPS

PREPARING PROJECTED FINANCIAL STATEMENTS FOR MCDONALD’S PURPOSE: This exercise is designed to give you experience preparing projected financial statements. Pro forma analysis is a central strategy-implementation technique because it allows managers to anticipate and evaluate the expected results of various strategy-implementation approaches. Strategy 1) Build 300 new company-owned and operated McDonald’s in Africa at a cost of \$1 million dollars each. 2) Forecast a 10% rise in company-owned restaurant sales in year 2010 3) Borrow \$150 million payable in five yearly installments @ 4% simple interest 4) On January 10, 2010 issue...