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Neporo4naja [7]
3 years ago
14

Santos Unlimited (SU) was originally unlevered with 4200 shares outstanding. However, after a major financial restructure, SU no

w has $37000 of debt, with an annual interest expense of 8 percent. The restructuring has reduced the number of shares to 3800. A group of shareholders of SU are not convinced that this move towards adopting financial leverage is a good idea. Their main argument is that there is now some range of EBIT, however low, that will make the shareholders worse off than before.
Required:
Help understand the situation better by computing the level of earnings before interest and tax (EBIT) that would make shareholders indifferent between being unlevered (i.e. not having any debt) and levered (i.e. having debt). Assume a 34 percent corporate tax rate.
Business
1 answer:
Nataly_w [17]3 years ago
3 0

Answer:

                            Unlevered             Levered

EAT       EBIT * (1-t)         EBIT - Interest - Tax

No. of shares         4,200                   3,800

Payoff per share holder = EAT / Number of shares. At Indifference point, per share payoff should be equal in both cases

EBIT * 0.66 / 4,200 = (EBIT - (37,000*8%) * 0.66) / 3,800

0.66*EBIT / 4,200 = [0.66*EBIT - 2,960*0.66] / 3,800

3,800 * 0.66EBIT = 4,200*[0.66EBIT - 1,954]

2,508 EBIT = 2,772 EBIT - 8,206,800

2,772 EBIT - 2,508 EBIT = 8,206,800

264 EBIT = 8,206,800

EBIT = 8,206,800/264

EBIT = 31086.36363636364

EBIT = $31,086.36

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The amount of money I would have in US dollars would be $1,000

<h3>How much would I have in US dollars?</h3>

The first step is to convert dollars to pesos:

$1000 x 10 = 10,000 pesos

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2 years ago
Locking a cell so that others cannot alter its contents is known as _____.
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8 0
3 years ago
Berry Corporation has 50,000 shares of $10 par common stock authorized. The following transactions took place during 2012, the f
mojhsa [17]

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$285,000

Explanation:

Please see attachment

5 0
2 years ago
You have a portfolio that is invested 14 percent in Stock R, 50 percent in Stock S, and the remainder in Stock T. The beta of St
pantera1 [17]

Answer:

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1.30 = (0.14 × 0.81) + (0.5  × 1.36) + (0.36 ×  beta of the Stock T)

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3 years ago
Andreasen Corporation manufactures thermostats for office buildings. The following is the cost of each unit. Materials $ 36.00 L
ICE Princess25 [194]

Answer:

Instructions are listed below

Explanation:

Giving the following information:

The following is the cost of each unit:

Materials $ 36.00

Labor 14.00

Variable overhead 4.00

Fixed overhead ($1,890,000/105,000 units) 18.00

Total $ 72.00

Simpson Company has approached Andreasen with an offer to buy 8,000 thermostats for $60 each. The regular price is $100.

Simpson requires that each unit use its branding, which requires a more expensive label, resulting in an additional $2.00 per unit material cost. The Simpson order will also require a one-time rental of packaging equipment for $30,000.

Because this is a special offer and we have unused capacity, we will not have into account the fixed costs.

A)

Costs:

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Labor 14.00

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B) Sales= 8000*60= $480,000

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Gross profit= 2,000

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C) break-even point= fixed costs/ contributionmargin= 30000/ (60-56)= 7500 units

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