Use the Table for the Question(s)below

question 99

Multiple Choice

Use the table for the question(s) below.

-Banco Industries expects sales to grow at a rapid rate over the next 3 years,but settle to an industry growth rate of 5% in year 4.The spreadsheet above shows a simplified pro forma for Banco Industries.Banco Industries has a weighted average cost of capital of 12%,$50 million in cash,$60 million in debt,and 18 million shares outstanding.If Banco Industries can reduce their operating expenses so that EBIT becomes 12% of sales,by how much will their stock price increase?

• A)$2.80
• B)$3.36
• C)$4.98
• D)$8.89
• E)$10.12

---

Definitions:

Retained Earnings

Profits that a company keeps at the end of a fiscal period, after dividends are paid, for reinvestment or debt payment.

Additional Paid-in Capital

The amount of money that shareholders have paid in excess of the par value of the shares; this can occur when shares are initially sold or during subsequent capital injections.

Preferred Stock

A class of ownership in a corporation that typically provides dividend payments before dividends are issued to common stockholders, often with no voting rights.

Common Stock

A type of security that signifies ownership within a corporation, known as corporate equity ownership.