Question

Perform an EPS/EBIT Analysis for the Hershey Company Problem Statement: Hershey needs to raise $1Bn to...

Perform an EPS/EBIT Analysis for the Hershey Company

Problem Statement:

Hershey needs to raise $1Bn to build four new manufacturing plants outside the United States to implement their strategic plan. The Board of Directors and Executive Leadership team are evaluating how best to raise this capital. Complete an analysis to determine the best solution.

Addition to EBIT on new investment is $1b

Currently, Hershey has the following input for the analysis:

Interest Rate:                                    3%

Tax Rate:                                             34%

Stock Price (January 2015)            $106

# of Shares Outstanding:               220Mn

EBIT in 2014 was $1.3Bn so evaluate options based on $1.0Bn and $2.0Bn. For the evaluation, they will consider 100% stock, 100% debt and 50/50 combination.

Prepare an EPS/EBIT analysis for Hershey using the above information.

What recommendation would you give the Board on the source of the capital required?

Use the template provided below to complete the steps.

EPS/EBIT Analysis

100% Common Stock Financing

Recession

Normal

Boom

EBIT

Interest

EBT

Taxes

EAT

# Shares

EPS

100% Debt Financing

Recession

Normal

Boom

EBIT

Interest

EBT

Taxes

EAT

# Shares

EPS

50% Stock / 50% Debt Financing

Recession

Normal

Boom

EBIT

Interest

EBT

Taxes

EAT

# Shares

EPS

What recommendation would you give the Board for financing this project?

Business   Accounting   
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Homework Answers

Answer #1

ALL AMOUNT IS IN MILLOINS

EBIT( MILIIONS) 2000 2300 3000

INTEREST

 0 0 0
EBT 2000 2300

3000
TAXES 680 782 1020
EAT 1320 1518 1980
NO OF SHARE 229 229 229
EPS 5.764 6.629 8.6.6

EBIT

 2000 2300 3000
INTEREST 30 30 30
EBT 1970 2270 2970
TAXES 669.8 771.8 1009.8
EAT 1300.2 1498.2 1960.2
NO OF SHARE 220 220 220
EPS 5.91 6.81 8.91
EBIT 2000 2300 3000
INTERST 15 15 15
EBT 1985 2285 2985
TAXES 674.9 68.55 1014.9
EAT 1310.1 1508.1 1970.1
NO OF SHARE 225 225 225
EPS 5.85 6.70 8.75
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