GB518 Unit 7's debt versus equity analysis appears finished here: one warehouse funded two ways, compared through pro forma statements, EPS and leverage ratios. Searches like "gb 518 unit 7 assignment example", "gb518 unit 7 sample" and "gb518 unit 7 example" land here.
What a finished GB518 Unit 7 debt versus equity analysis looks like
A brief situation paragraph states the amount needed, the expected operating income from the warehouse and the two options: ten-year bonds at a stated coupon, or new common shares at the current market price. Pro forma statements follow in parallel columns, current, with bonds, with stock, showing the balance sheet's liabilities and equity sections and an income statement from operating income down to net income and earnings per share. A ratio table adds debt to equity, debt to total assets and times interest earned under each option. An EPS break-even calculation identifies the operating income at which the two options produce equal earnings per share. A downturn scenario reruns the numbers with operating income cut by a third. The recommendation weighs return, risk and ownership dilution.
How a GB518 Unit 7 example is structured
Everything here begins from the statements because the course's question is how financing choices appear in reported figures. Parallel columns keep the options comparable line by line; a reader can follow the $12 million into bonds payable in one column and into common stock and additional paid-in capital in the other. The income statement comparison shows the two mechanisms: interest reduces income but is tax deductible, while new shares leave income intact but divide it among more owners. Ratios then translate the balance sheet change into the terms a lender uses, and times interest earned tests whether the bond option leaves a safe margin. The EPS break-even gives the decision a threshold, and the downturn scenario tests it. The recommendation follows from both, not from the base case alone.
Three columns, one company
Current figures, the bond option and the stock option share every row. Nothing changes between columns except what the financing itself changes, which isolates the effect.
Interest shield and share count
Interest expense cuts pretax income, and the tax saving is shown on its own line. Under the stock option, net income is higher but divided across roughly fifteen percent more shares.
Leverage as a lender reads it
Debt to equity nearly doubles under the bond option, and times interest earned falls from nine to about four. A sentence places both against a covenant threshold stated in the scenario.
Where EPS lines cross
Setting the two EPS formulas equal gives the operating income at which the options tie. Expected income sits above it, which favors debt on the base case.
A lean year, rerun
With operating income down a third, the bond option's EPS falls faster and coverage nears the covenant. The recommendation accepts debt but sizes it smaller, funding the rest from retained earnings.
Where marks go in GB518 Unit 7
Treating the choice as arithmetic only is where this analysis loses the most credit. Papers that compute EPS under each option and recommend whichever is higher, with no risk discussion, earn the calculation row and lose the analysis row that many GB518 rubrics weight most. Forgetting the tax deductibility of interest overstates the cost of debt and is the most common computation error. Share counts that ignore the new shares issued, or new shares priced at par rather than market, distort EPS. Balance sheets that record the stock issue entirely in common stock when the prompt gives a par value lose presentation points. Ratios reported without a benchmark or covenant leave the leverage question unanswered. Recommendations that mention dilution or control without quantifying them read as incomplete.
Get a GB518 Unit 7 example written to your instructions
The amounts, rates and share prices in your GB518 Unit 7 prompt drive a custom debt versus equity analysis. Pass them along with the instructions and rubric; in 24 to 48 hours a sample returns with pro forma columns, the EPS break-even and a downturn test. The first carries no charge.
GB518 Unit 7 questions, answered
Why does debt usually raise earnings per share?
Because interest is a fixed, tax-deductible cost, while new shares split all future earnings among more owners. When the investment earns more than the after-tax cost of the debt, the extra profit goes to existing shareholders. When earnings fall, the fixed interest hurts more. That two-sided effect is what the downturn scenario in the GB518 example makes visible.
What is the EPS break-even point?
It is the level of operating income at which the debt and equity options produce the same earnings per share. Above it, debt gives higher EPS; below it, equity does. Setting the two EPS formulas equal and solving for operating income produces it. The figure turns a vague comparison into a threshold a board can weigh against expected income.
Does the analysis need to consider things beyond the numbers?
Yes, briefly. Ownership dilution, loss of control, loan covenants, flexibility for future borrowing and the signal each choice sends to investors all appear in strong GB518 papers. They belong after the quantitative comparison and should connect to it, for example noting that the covenant makes a second loan unlikely if the bond option is chosen.