Question
In: Finance
Bellwood Corp. is comparing two different capital structures. Plan I would result in 12,700 shares of...
Bellwood Corp. is comparing two different capital structures. Plan I would result in 12,700 shares of stock and $109,250 in debt. Plan II would result in 9,800 shares of stock and $247,000 in debt. The interest rate on the debt is 10 percent.
a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $79,000. The all-equity plan would result in 15,000 shares of stock outstanding. Which of the three plans has the highest EPS? The lowest?
b. In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? Is one higher than the other? Why?
c. Ignoring taxes, when will EPS be identical for Plans I and II?
d. Repeat parts (a), (b), and (c) assuming that the corporate tax rate is 21 percent. Are the break even levels of EBIT different from before? Why or why not?
Solutions
jeff jeffy answered 4 months agoRelated Solutions
Bellwood Corp. is comparing two different capital structures. Plan I would result in 12,700 shares of...
Bellwood Corp. is comparing two different capital structures.
Plan I would result in 12,700 shares of stock and $109,250 in debt.
Plan II would result in 9,800 shares of stock and $247,000 in debt.
The interest rate on the debt is 10 percent.
a.
Ignoring taxes, compare both of these plans to an all-equity
plan assuming that EBIT will be $79,000. The all-equity plan would
result in 15,000 shares of stock outstanding. What is the EPS for
each of...
Bellwood Corp. is comparing two different capital structures. Plan I would result in 12,700 shares of...
Bellwood Corp. is comparing two different capital structures.
Plan I would result in 12,700 shares of stock and $109,250 in debt.
Plan II would result in 9,800 shares of stock and $247,000 in debt.
The interest rate on the debt is 10 percent.
a.
Ignoring taxes, compare both of these plans to an all-equity
plan assuming that EBIT will be $79,000. The all-equity plan would
result in 15,000 shares of stock outstanding. What is the EPS for
each of...
Bellwood Corp. is comparing two different capital structures. Plan I would result in 28,000 shares of...
Bellwood Corp. is comparing two different capital structures.
Plan I would result in 28,000 shares of stock and $88,500 in debt.
Plan II would result in 22,000 shares of stock and $265,500 in
debt. The interest rate on the debt is 4 percent. Assume that EBIT
will be $105,000. An all-equity plan would result in 31,000 shares
of stock outstanding. Ignore taxes.
What is the price per share of equity under Plan I? Plan II?
(Do not round intermediate...
Bellwood Corp. is comparing two different capital structures. Plan I would result in 36,000 shares of...
Bellwood Corp. is comparing two different capital structures.
Plan I would result in 36,000 shares of stock and $103,500 in debt.
Plan II would result in 30,000 shares of stock and $310,500 in
debt. The interest rate on the debt is 4 percent. Assume that EBIT
will be $145,000. An all-equity plan would result in 39,000 shares
of stock outstanding. Ignore taxes.
What is the price per share of equity under Plan I? Plan II?
(Do not round intermediate...
Bellwood Corp. is comparing two different capital structures. Plan I would result in 34,000 shares of...
Bellwood Corp. is comparing two different capital structures.
Plan I would result in 34,000 shares of stock and $97,500 in debt.
Plan II would result in 28,000 shares of stock and $292,500 in
debt. The interest rate on the debt is 6 percent. Assume that EBIT
will be $135,000. An all-equity plan would result in 37,000 shares
of stock outstanding. Ignore taxes.
What is the price per share of equity under Plan I? Plan II?
Bellwood Corp. is comparing two different capital structures. Plan I would result in 26,000 shares of...
Bellwood Corp. is comparing two different capital structures.
Plan I would result in 26,000 shares of stock and $85,500 in debt.
Plan II would result in 20,000 shares of stock and $256,500 in
debt. The interest rate on the debt is 6 percent. Assume that EBIT
will be $95,000. An all-equity plan would result in 29,000 shares
of stock outstanding. Ignore taxes. What is the price per share of
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Bellwood Corp. is comparing two different capital structures. Plan I would result in 31,000 shares of...
Bellwood Corp. is comparing two different capital structures.
Plan I would result in 31,000 shares of stock and $93,000 in debt.
Plan II would result in 25,000 shares of stock and $279,000 in
debt. The interest rate on the debt is 7 percent.
a.
Ignoring taxes, compare both of these plans to an all-equity
plan assuming that EBIT will be $120,000. The all-equity plan would
result in 34,000 shares of stock outstanding. What is the EPS for
each of...
Coldstream Corp. is comparing two different capital structures. Plan I would result in 16,000 shares of...
Coldstream Corp. is comparing two different capital structures.
Plan I would result in 16,000 shares of stock and $100,000 in debt.
Plan II would result in 12,000 shares of stock and $200,000 in
debt. The interest rate on the debt is 6 percent. a. Ignoring
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Haskell Corp. is comparing two different capital structures. Plan I would result in 12,000 shares of...
Haskell Corp. is comparing two different capital structures.
Plan I would result in 12,000 shares of stock and $100,000 in debt.
Plan II would result in 4,000 shares of stock and $200,000 in debt.
The interest rate on the debt is 8 percent. a. Ignoring taxes,
compare both of these plans to an all-equity plan assuming that
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Destin Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of...
Destin Corp. is comparing two different capital structures. Plan
I would result in 10,000 shares of stock and $90,000 in debt. Plan
II would result in 7,600 shares of stock and $198,000 in debt. The
interest rate on the debt is 10 percent.
a.
Ignoring taxes, compare both of these plans to an all-equity
plan assuming that EBIT will be $48,000. The all-equity plan would
result in 12,000 shares of stock outstanding. What is the EPS for
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