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Effect of large transaction; Compute Global's EBIT, income, P/E

1. Suppose your firm receives a $5 million order on the last day of the year. The customer picks up the entire order the same day and pays $1 million in upfront in cash; you also issue a bill for the customer to pay the remaining balance of $4 million within 30 days. Suppose your firms tax rate is 0 (ignore taxes). Determine the consequences of this transaction on each of the following:

a. Revenues
b. Earnings
c. Receivables
d. Inventory
e. Cash

2. Suppose that in 2006 Global launched an aggressive marketing campaign that boosts sales by 15%. 2005 sales was 186.7 million. However, their operating margin fell from 5.57% (2005) to 4.50% (2006). Operating income was 10.4 for 2005. Other income was 0 for 2005. Suppose they have no other income, interest expenses are unchanged(7.7 for 2005) and taxes are the same percentage of pretax income as in 2005. Pretax income for 2005 is 2.7 and the taxes are .07. Globals P/E ratio in 2005 was 50.4/2.0 = 14/0.56 =25.2. 3.6 million shares are outstanding, they sell for $14 a share. Net income was 2.0 and earningsd per share was .556.

a. What is Global's EBIT in 2006?
b. What is Globals income in 2006?
c. If Globals P/E ratio and number of shares outstanding remains unchanged, what is Globals share price in 2006?

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Question 1
A. Revenue will increase by $5 million
B. Earnings will increase by $2.5 million (assuming COGS is ...

Solution Summary

The effect of large transition is determined. The global's EBIT is determined.