The Lawn Robot Is it Really Worth it.docx - Summary Norton...

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SummaryNorton Electronics is looking at an expansion project that can potentially increase sales by 30% per yearover the next 5 years. They will need $5 million dollars in order to finance the project. Mark Norton the chief executive officer of the firm is wondering if the firm should issue common stock to raise the needed funds or gowith fixed rate debt. The two options were put to a vote, but the board members were equally divided. Which option should the firm choose?1. Raise all of the required capital by issuing debt, what is the impact on the firm’s shareholders?CurrentWorst Case +10%Expected +30%Best Case +50%EBIT2,250,000.002,475,000.002,925,000.003,375,000.00Interest0500,000.00500,000.00500,000.00Tax @ 40%900,000.00790,000.00970,000.001,150,000.00Net Income1,350,000.001,185,000.001,455,000.001,725,000.00EPS1.351.1851.4551.725ROE9.00%7.90%9.70%11.50%ROA6.75%4.74%5.82%6.90%2. What does homemade leverage mean? How might shareholders use homemade leverage to create the same payoffs as achieved by the firm

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