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

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Definitions:

Processing Cost

The total expense incurred to convert raw materials into finished products, including labor, materials, and overhead costs in a manufacturing process.

Differential Analysis

The process of comparing the cost and revenue of different business decisions to determine which option offers the best financial outcome.

Make or Buy

A decision-making process in businesses to determine whether to produce goods internally or purchase them from an external supplier.

Operating Capacity

The maximum output that a company can produce under normal conditions over a specific period of time.