Question
In: Finance
- Alpha Company is looking at two different capital structures, one an all-equity firm and the...
- Alpha Company is looking at two different capital structures, one an all-equity firm and the other a leveraged firm with $2 million of debt financing at 8% interest. The all-equity firm will have a value of $4 million with 400,000 shares outstanding. The leveraged firm will have 200,000 shares outstanding. Assume there are no taxes. a. What is the EPS for the unlevered and levered capital structures assuming operating income is $240,000? b. What is the EPS for the unlevered and levered capital structures assuming operating income is $400,000? c. At what operating income would Alpha Company be indifferent between the two capital structures? d. Create a graph with operating income on the horizontal axis and EPS on the vertical axis. Show on the graph how EPS varies with operating income for the two capital structures.
Solutions
Expert Solution
SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE
jeff jeffy answered 5 months agoRelated Solutions
Contrail Air, Inc., is looking at two capital structures. Plan A is an all equity with...
Contrail Air, Inc., is looking at two capital structures.
Plan A is an all equity with 500,000 shares outstanding
Plan B is a levered plan with 320,000 shares outstanding and
debt of $3,467,000 outstanding. The interest rate on the debt is 8
percent, and there are no taxes.
If EBIT is $500,000, which plan will result in the higher
EPS?
If EBIT is $800,000, which plan will result in the higher
EPS?
What is the break-even EBIT
5. A company is comparing the following two different capital structures: Plan 1 -All equity; and...
5. A company is comparing the following two different capital
structures:
Plan 1 -All equity; and Plan 2 -a levered plan.
Under plan 1 the firm would have 200,000 shares of stock
outstanding.
Under plan 2, there would be 100,000 shares of stock outstanding
plus $4 million in debt. The interest rate on the debt is 10
percent. Tax rate is 40%.
a.If the expected EBIT is $500,000, which plan
will result in higher EPS?
($1.50;
0.60)
b. If...
Square Block Company is comparing two different capital structures: An all-equity plan (Plan I) and a...
Square Block Company is comparing two different capital
structures: An all-equity plan (Plan I) and a levered plan (Plan
II). Under Plan I, the company would have 350,000 shares of stock
outstanding. Under Plan II, there would be 225,000 shares of stock
outstanding and $5 million in debt outstanding. The interest rate
on the debt is 10 percent, and there are no taxes.
a.
If EBIT is $1,000,000,
which plan will result in the higher EPS?
b....
Byrd Corp is comparing two different capital structures, and all equity plan (Plan I) and a...
Byrd Corp is comparing two different capital structures, and all
equity plan (Plan I) and a levered plan(Plan II). Under Plan I, the
company would have 175,000 shares of stock outstanding. Under Plan
II, there would be 125,000 shares of stock outstanding and 2.23
million in debt outstanding. The interest rate on the debt is 8
percent and there are no taxes.
a. USE MM Proposition I to find price per share.
b, What is the value of the firm...
James Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered...
James Corporation is comparing two different capital structures:
an all-equity plan (Plan I) and a levered plan (Plan II). Under
Plan I, the company would have 160,000 shares of stock outstanding.
Under Plan II, there would be 80,000 shares of stock outstanding
and $2.8 million in debt outstanding. The interest rate on the debt
is 8 percent, and there are no taxes.
Required:
(a)
If EBIT is $350,000, Plan I's EPS is $ while Plan
II's EPS is $ . (Do not...
Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levered...
Round Hammer is comparing two different capital structures: An
all-equity plan (Plan I) and a levered plan (Plan II). Under Plan
I, the company would have 175,000 shares of stock outstanding.
Under Plan II, there would be 125,000 shares of stock outstanding
and $1.7 million in debt outstanding. The interest rate on the debt
is 5 percent, and there are no taxes.
a.
If EBIT is $325,000, what is the EPS for each plan? (Do
not round intermediate calculations...
Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levered...
Round Hammer is comparing two different capital structures: An
all-equity plan (Plan I) and a levered plan (Plan II). Under Plan
I, the company would have 180,000 shares of stock outstanding.
Under Plan II, there would be 130,000 shares of stock outstanding
and $1.925 million in debt outstanding. The interest rate on the
debt is 8 percent, and there are no taxes.
a.
Use
M&M Proposition I to find the price per share. (Do not
round intermediate calculations and...
Byrd Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered...
Byrd Corporation is comparing two different capital structures,
an all-equity plan (Plan I) and a levered plan (Plan II). Under
Plan I, the company would have 205,000 shares of stock outstanding.
Under Plan II, there would be 155,000 shares of stock outstanding
and $3.1 million in debt outstanding. The interest rate on the debt
is 8 percent and there are no taxes.
a.
If EBIT is $600,000, what is the EPS for each plan? (Do
not round intermediate calculations...
Yasmin Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered...
Yasmin Corporation is comparing two different capital
structures, an all-equity plan (Plan I) and a levered plan (Plan
II). Under Plan I, Yasmin would have 180,000 shares of stock
outstanding. Under Plan II, there would be 130,000 shares of stock
outstanding and $1.8 million in debt outstanding. The interest rate
on the debt is 6 percent and there are no taxes.
a.
If EBIT is $225,000, what is the EPS for each plan? (Do
not round intermediate calculations and round...
Hale Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered...
Hale Corporation is comparing two different capital structures,
an all-equity plan (Plan I) and a levered plan (Plan II). Under
Plan I, the company would have 175,000 shares of stock outstanding.
Under Plan II, there would be 125,000 shares of stock outstanding
and $2.5 million in debt outstanding. The interest rate on the debt
is 8 percent and there are no taxes. a. If EBIT is $650,000, what
is the EPS for each plan? (Do not round intermediate calculations
and...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Two structures of alanine can be drawn that have a net charge of zero, but the...
- Co(II) was used as an internal standard to analyze a sample of Ti(IV) with atomic absorption...
- Matlab Programming Write an M-file to read a real-valued vector of any length from the keyboard...
- TASK back to top In the contemporary management environment, mergers and acquisitions are hot topics; particularly...
- A room with 2.7-m-high ceilings has a metal plate on the floor with V = 0V...
- which of the following statements are true? a) the same nuclear changes (creation/destruction of specific nucleons)...
- Overview: Advances in technology have impacted many facets of the auditing process, from assessing risk and...
ADVERTISEMENT