Integrative—Optimal capital structure Country Textiles, which has fixed operating costs of $300,000… 1 answer below »


Integrative—Optimal high organization Country Textiles, which has unroving gratuitous consumes of $300,000 and fickle gratuitous consumes resembling to 40% of sales, has made the aftercited three sales venerates, delay their probabilities famed.

Sales

Probability

$ 600,000

.30

900,000

.40

1,200,000

.30

The attached wishes to irritate five potential high organizations—0, 15, 30, 45, and 60% claim aspects. The attached’s completion possessions of $1 pet are productive to be fast. Its contemptible supply has a dimensions treasure of $25 per portion-out, and the attached is in the 40% tax grasp. The aftercited added postulates accept been collected for use in analyzing the five high organizations beneath consequence.

Capital organization

Before-tax consume

Required

claim aspect

of claim, kd

return, ks

0%

0.0%

10.0%

15

8.0

10.5

30

10.0

11.6

45

13.0

14.0

60

17.0

20.0

 

a. Calculate the equalize of EBIT associated delay each of the three equalizes of sales.

b. Calculate the whole of claim, the whole of equity, and the venerate of portion-outs of contemptible supply ungathered for each of the high organizations nature considered.

c. Calculate the annual attention on the claim beneath each of the high organizations nature considered. (Note: The before-tax consume of claim, kd, is the attention blame available to all claim associated delay the identical claim aspect.)

d. Calculate the EPS associated delay each of the three equalizes of EBIT conducive in dissect a for each of the five high organizations nature considered.

e. Calculate (1) the expected EPS, (2) the scale gap of EPS, and (3) the coefficient of abnormity of EPS for each of the high organizations, using your findings in dissect d.

f. Concoct the expected EPS and coefficient of abnormity of EPS resisting the high organizations (x axis) on sepablame sets of axes, and dilate on the produce and miss not-absolute to high organization.

g. Using the EBIT–EPS postulates open in dissect d, concoct the 0, 30, and 60% high organizations on the selfselfsame set of EBIT–EPS axes, and argue the ranges balance which each is preferred. What is the superior bearing delay the use of this admittance?

h. Using the valuation type ardent in Equation 12.12 and your findings in dissect e, venerate the portion-out treasure for each of the high organizations nature considered.

i. Compare and opposition your findings in dissects f and h. Which organization is preferred if the view is to maximize EPS? Which organization is preferred if the view is to maximize portion-out treasure? Which high organization do you commend? Explain.