Assignment
Nile Holdings
|
Last Years EBIT
|
$300,000,000
|
|
expected EBIT
|
$333,000,000
|
|
Current Portion of existing LT debt
|
$46,250,000
|
|
Interest Due (2017) on Exisiting Debt
|
$75,000,000
|
|
Tax Rate
|
40%
|
|
Times Interest Earned
|
4
|
|
Common Stock Price per share
|
$50
|
|
Commonshares Outstanding
|
25,000,000.00
|
|
Dividends per share
|
$2.50
|
A) Assume Nile raises $100 million of new debt at the end of 2016, at an interest rate of 8.25%.
a. Calculate the firm's pro forma 2017 times-interest-earned (TIE) ratio.
b. Calculate 2017's times-burden-covered ratio.
c. What percentage can EBIT fall before they can no longer meet there annual burden?
d. Calculate 2017's earnings per share.
B) Now assume Nile sells 2 million new shares at $50 a share instead of raising new debt.
a. Calculate the firm's pro forma 2017 times-interest-earned (TIE) ratio.
b. Calculate 2017's times-burden-covered ratio
c. What percentage can EBIT fall before they can no longer meet there annual burden?
d. Calculate 2017's earnings per share
C. Comparing parts A and B, would you recommend they issue Debt or Equity?