You are a buy-side analyst researching the Gorilla Glass Co.Gorilla plans to borrow $11 million by issuing bonds with an annual coupon of 7% and a yield to maturity of 7%.Gorilla will use the borrowed money to repurchase shares on the open market at $40 per share.You have gathered the information,shown in the table,regarding the company prior to the repurchase.You estimate that EBIT for Year 1 will be the same as reported for Year 0.Assume that the money is borrowed and the repurchase is executed at the beginning of Year 1.
Gorilla Glass Co.
Dec 31,Year 0

What is the Year 1 EPS?

Question

You are a buy-side analyst researching the Gorilla Glass Co.Gorilla plans to borrow $11 million by issuing bonds with an annual coupon of 7% and a yield to maturity of 7%.Gorilla will use the borrowed money to repurchase shares on the open market at $40 per share.You have gathered the information,shown in the table,regarding the company prior to the repurchase.You estimate that EBIT for Year 1 will be the same as reported for Year 0.Assume that the money is borrowed and the repurchase is executed at the beginning of Year 1.
Gorilla Glass Co.
Dec 31,Year 0

What is the Year 1 EPS?

Quizplus · Accepted Answer

EPS_A = 11ea7fdb_fc53_634b_a768_6fb7b06cdfc1_TB2902_11 N_R = 11ea7fdb_fc53_634c_a768_db2b67ff37f9_TB2902_11 = 275,000 N_A = N_B - N_R N_A = 3,000,000 - 275,000 N_A = 2,725,000 Net 11ea7fdb_fc53_8a5d_a768_377a9af9aa62_TB2902_11 = ( 11ea7fdb_fc53_8a5e_a768_c79f3eb849bd_TB2902_11 - 11ea7fdb_fc53_8a5f_a768_0fa9c0bae187_TB2902_11 ) × (1 - T) 11ea7fdb_fc53_8a60_a768_97893d677c8d_TB2902_11 = $11,000,000 × 0.07 = $770,000 Net 11ea7fdb_fc53_8a61_a768_a509ff5c2011_TB2902_11 = (10,331,538- 770,000) × (1 - 0.35) Net 11ea7fdb_fc53_8a62_a768_8bbf2c2de82e_TB2902_11 = $6,215,000 EPS_A = 11ea7fdb_fc53_b173_a768_97ce7b3b82b8_TB2902_11 = $2.28

You Are a Buy-Side Analyst Researching the Gorilla Glass Co