Share
Explore BrainMass

Pro forma Income Statement

The firm is considering taking on $1 billion in debt over five years to accelerate the stock buyback program. Over a 11 year period the following trends were observed:
Compounded annual growth rates:
Sales 9%
Earnings 11%
Cash Flows 12%
The company maintained:
Average gross profit 77%
EBITDA 53%
EBIT 50%
Net margin 31%
Annual return on equity averaged 89%
ROA 48%
The company also provided 2.2B in dividends and repurchased 2B in stock
Calculate the PRO FORMA FOR THIS COMPANY.

If the company takes on the entire 1B in debt immediately, calculate the marginal (incremental)effect on the company value.

What is the value of tax shields for this company?(if 1B of new debt is constant and perpetual).

Company has a 38% tax rate.

Attachments

Solution Preview

If the company takes on the entire 1B in debt immediately, calculate the marginal (incremental)effect on the company value.

We calculate the impact on the value of the firm due to ...

Solution Summary

The solution explains how to prepare a pro forma income statement and calculate the value of a firm

$2.19