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Watson Case Solution
Watson Case Solution
Watson Case Solution
Sales 150,000,000.00
Cost of Goods Sold (90,000,000.00)
Other Operating Expenses (45,000,000.00)
Net Operating Income 15,000,000.00 16,500,000.00
Interest Expense (4,000,000.00) (4,000,000.00)
Net Income before taxes 11,000,000.00 12,500,000.00
Income Tax (40%) 4,400,000.00 5,000,000.00
Net Income 6,600,000.00 7,500,000.00
Alternative 1
5,000,000.00 200,000.00
0
2,500,000.00 100,000.00
16,500,000.00 16,500,000.00
(4,750,000.00) (4,375,000.00)
11,750,000.00 12,125,000.00
4,700,000.00 4,850,000.00
7,050,000.00 7,275,000.00
Alternative 2 Alternative 3
Issue 100,000 shares and
Issue long-term debt @ 15% interest long-term debt at 15%
1.84 1.87
0.15 0.15
0.08 0.08
0.15 0.15
0.06 0.06
0.77 0.68
0.77:1 0.68:1
Average Shares Outstanding SHE at the end of 2015 Average SHE
57,500,000.00
52,050,000.00
54,775,000.00