40 net profits after taxes eps 60000 25000 sh 240

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Unformatted text preview: 20,000 Interest (rate Taxes (T 0.40) Net profits after taxes EPS $60,000 25,000 sh. $2.40 $120,000 25,000 sh. $4.80 14. A convenient method for finding one EBIT–EPS coordinate is to calculate the financial breakeven point, the level of EBIT for which the firm’s EPS just equals $0. It is the level of EBIT needed just to cover all fixed financial costs— annual interest (I) and preferred stock dividends (PD). The equation for the financial breakeven point is Financial breakeven point I PD 1T where T is the tax rate. It can be seen that when PD = $0, the financial breakeven point is equal to I, the annual interest payment. CHAPTER 11 EPS ($) FIGURE 11.4 10 9 8 7 6 5 4 3 2 1 0 Leverage and Capital Structure 445 Graphic Presentation of a Financing Plan JSG Company’s zero-leverage financing plan $4.80 (2) $2.40 Debt = 0% Ratio (1) 50 100 150 200 EBIT ($000) The two EBIT–EPS coordinates resulting from these calculations are (1) $100,000 EBIT and $2.40 EPS and (2) $200,000 EBIT and $4.80 EPS. Plotting the Data financial breakeven point The level of EBIT necessary to just cover all fixed financial costs; the level of EBI...
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This document was uploaded on 03/30/2014.

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