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  • Expected EBIT Interest Etaxable Income Net Income Expected ROE

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    mukulful2008
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    This document contains a financial analysis of a company under different capital structures: 1) An all-equity structure with $35,000 in expected EBIT and an 18% expected return on equity. 2) Leverage of 10% debt at an interest rate of $8,750, which increases expected return on equity to 12%. 3) Leverage of 50% debt at a 1:1 debt-to-equity ratio and $87,500 in interest expense, which increases expected return on equity to a mean of 18% but also increases risk.

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    Business Risk

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    This document contains a financial analysis of a company under different capital structures: 1) An all-equity structure with $35,000 in expected EBIT and an 18% expected return on equity. 2) Leverage of 10% debt at an interest rate of $8,750, which increases expected return on equity to 12%. 3) Leverage of 50% debt at a 1:1 debt-to-equity ratio and $87,500 in interest expense, which increases expected return on equity to a mean of 18% but also increases risk.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Als XLS, PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    34 Ansichten7 Seiten

    Expected EBIT Interest Etaxable Income Net Income Expected ROE

    Hochgeladen von

    mukulful2008
    This document contains a financial analysis of a company under different capital structures: 1) An all-equity structure with $35,000 in expected EBIT and an 18% expected return on equity. 2) Leverage of 10% debt at an interest rate of $8,750, which increases expected return on equity to 12%. 3) Leverage of 50% debt at a 1:1 debt-to-equity ratio and $87,500 in interest expense, which increases expected return on equity to a mean of 18% but also increases risk.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Als XLS, PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    von 7

    prob

    units sold
    0.03
    0.07
    0.15
    0.5
    0.15
    0.07
    0.03
    1

    0
    40,000
    60,000
    110,000
    160,000
    180,000
    220,000

    sales
    0
    80000
    120000
    220000
    320000
    360000
    440000

    FC=$20,000; V
    operating costs
    20000
    80000
    110000
    185000
    260000
    290000
    350000

    FC=$20,000; VC=$1.50 per unit


    EBIT
    NI (T=40%)
    ROE
    -20000
    -12000
    0
    0
    10000
    6000
    35000
    21000
    60000
    36000
    70000
    42000
    90000
    54000
    245000
    147000

    FC=$60,0
    costs
    -6.9
    0.0
    3.4
    12.0
    20.6
    24.0
    30.9

    60000
    100000
    120000
    170000
    220000
    240000
    280000

    FC=$60,000; VC=$1.00
    EBIT
    NI
    ROE
    A
    -60000
    -36000
    -20.6
    -20000
    -12000
    -6.9
    0
    0
    0.0
    50000
    30000
    17.1
    100000
    60000
    34.3
    120000
    72000
    41.1
    160000
    96000
    54.9
    Mean=

    ExpROE
    -0.2
    0.0
    0.5
    6.0
    3.1
    1.7
    0.9
    12

    Financ
    Expected EBIT
    Interest
    Etaxable Income
    Net income
    Expected ROE

    ExpROE
    B

    A
    -0.6
    -0.5
    0.0
    8.6
    5.1
    2.9
    1.6
    17

    Risk=

    dev^2*prob
    B
    10.7
    10.1
    11.0
    0.0
    11.0
    10.1
    10.7
    63.5
    8.0

    Financial Leverage
    New Leverage 50%

    43
    40
    44
    0
    44
    40
    43
    254
    16

    All Equity (old)


    $35,000
    $8,750
    $26,250
    15750
    0.18

    $35,000
    0
    $35,000
    21000
    0.12

    exp(EBIT)
    -600
    0
    1500
    17500
    9000
    4900
    2700
    35000

    Taxable income NI
    -28750
    -8750
    1250
    26250
    51250
    61250
    81250

    -17250
    -5250
    750
    15750
    30750
    36750
    48750

    debt=10%$87,500 Debt:equ
    ROE(levered) ExpROE
    -20
    -1
    -6
    0
    1
    0
    18
    9
    35
    5
    42
    3
    56
    2
    Mean=
    18
    Risk(ROE) levered=

    10%$87,500 Debt:equity=1:1, Int=$8750


    Dev square*probTaxable income NI
    43
    -68750
    40
    -28750
    44
    -8750
    0
    41250
    44
    91250
    40
    111250
    43
    151250
    254
    16

    -41250
    -17250
    -5250
    24750
    54750
    66750
    90750

    ROE (levered)
    -47.1
    -19.7
    -6.0
    28.3
    62.6
    76.3
    103.7
    Mean=
    (ROE) levered

    ExpROE

    (ROE) levered

    -1
    -1
    -1
    14
    9
    5
    3
    28

    dev square*prob
    169
    159
    173
    0
    179
    163
    172
    1017
    32

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