Hancock Corp has the following operating results and capital structure. The firm is contemplating a capital restructuring to 60% debt. Its stock is currently selling for book value at $25 per share. The interest rate is 9%, and combined state and federal taxes are 42%. Show all of your calculation work and label all of your work so I can follow your calculation process. 1. Complete current income statement and balance sheet and income statement under proposed capital structure. 2. Calculate EPS under the current and proposed capital structures. 3. Calculate the DFL under both structures. Current Proposed INCOME STATEMENT Revenue $6,000,000 $6,000,000 Cost/Expense 4,500,000 4,500,000 EBIT $1,500,000 1,500,000 Interest (9%) EBT Tax (42%) EAT (Net Income) BALANCE SHEET Debt $1,200,000 Equity 8,800,000 Total $10,000,000 2 Number of Equity Shares Earnings Per Share (EPS) 3 Degee of Financial Leverage (DFL)
Hancock Corp has the following operating results and capital structure.
The firm is contemplating a capital restructuring to 60% debt. Its stock is currently selling for book value at $25 per share. The interest rate is 9%, and combined state and federal taxes are 42%.
Show all of your calculation work and label all of your work so I can follow your calculation process.
1. Complete current income statement and
2. Calculate EPS under the current and proposed capital structures.
3. Calculate the DFL under both structures. Current Proposed
INCOME STATEMENT
Revenue $6,000,000 $6,000,000
Cost/Expense 4,500,000 4,500,000
EBIT $1,500,000 1,500,000
Interest (9%)
EBT
Tax (42%)
EAT (Net Income)
BALANCE SHEET
Debt $1,200,000
Equity 8,800,000
Total $10,000,000
2
Number of Equity Shares
Earnings Per Share (EPS)
3
Degee of Financial Leverage (DFL)
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