Income Statement Format OPTION A OPTION B

Sales
Less: Variable Costs
Contribution Margin - -
Less: Fixed Costs
Earnings Before interest and Tax (EBIT) 230,000,000.00 230,000,000.00
Less: Interest 152,400,000.00 130,800,000.00
Earnings before Tax (EBT) 77,600,000.00 99,200,000.00
Less: Income Taxes 27,160,000.00 34,720,000.00
Earnings after Tax (EAT)/ Net Income 50,440,000.00 64,480,000.00
Less: Preferred Dividends 37,500,000.00 43,125,000.00
Income to Common Shareholders 12,940,000.00 21,355,000.00
Divide by: Number of Common Shares 108,000,000 113,000,000
EARNINGS PER SHARE 0.12 0.19
Current Number of Common Shares 1,000,000,000/10 100,000,000.00
Current Fixed Financing Charges:
Annual Interest: 750,000,000 x 16% 120,000,000.00
P/S Dividends: 300,000,000 x 12.5% 37,500,000.00

Additional Fund Needed : 300,000,000

Option A:
Debt:
Amount 180,000,000.00
Interest rate 18% 32,400,000.00 Additional Interest

Common Stock:
Amount 120,000,000.00
Issue Price/Share 15.00 8,000,000 Additional Number of Common Shares

Option B:
Debt:
Amount 60,000,000
Interest rate 18% 10,800,000.00 Additional Interest
Common Stock:
Amount 195,000,000.00
Issue Price/Share 15.00 13,000,000 Additional Number of Common Shares
Preferred Stock:
Amount 45,000,000.00
Dividend Rate 12.50% 5,625,000.00 Additional Preferred Dividends
 500,000 units 750,000 units % Change

Sales 1.00 500,000.00 750,000.00 50%

Less: Variable Costs 0.80 400,000.00 600,000.00
Contribution Margin 100,000.00 150,000.00
Less: Fixed Costs 50,000.00 50,000.00
Earnings Before interest and Tax (EBIT) 50,000.00 100,000.00 100%
Less: Interest 6,000.00 6,000.00
Earnings before Tax (EBT) 44,000.00 94,000.00
Less: Income Taxes 40% 17,600.00 37,600.00
Earnings after Tax (EAT)/ Net Income 26,400.00 56,400.00
Less: Preferred Dividends 2,400.00 2,400.00
Income to Common Shareholders 24,000.00 54,000.00 125%
Divide by: Number of Common Shares

EARNINGS PER SHARE

𝐷𝑂𝐿=𝐶𝑀/𝐸𝐵𝐼𝑇 𝐷𝑂𝐿=(%∆ 𝑖𝑛 𝐸𝐵𝐼𝑇)/(%∆ 𝑖𝑛 𝑆𝑎𝑙𝑒𝑠)

A.

DOL 100,000.00 DOL 100%

50,000.00 50%

DOL 2.00 times DOL 2.00 times

𝐷𝐹𝐿=𝐸𝐵𝐼𝑇/(𝐸𝐵𝐼𝑇 −𝑖 −𝑃𝐷/(1−𝑡)) 𝐷𝑂𝐿=(%∆ 𝑖𝑛 𝐸𝑃𝑆)/(%∆ 𝑖𝑛 𝐸𝐵𝐼𝑇)

Pretax PD 4,000.00 Pretax PD 4,000.00

DFL 50,000.00 DFL 125%

40,000.00 100%

DFL 1.25 times DFL 1.25

DTL = DTL X DOL DTL = DTL X DOL

DTL 2.5 times DTL 2.5