Question

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 these plans? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b.	In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.)
c.	Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.)
d-1.	Assuming that the corporate tax rate is 21 percent, what is the EPS of the firm? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
d-2.	Assuming that the corporate tax rate is 21 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.)
d-3.	Assuming that the corporate tax rate is 21 percent, when will EPS be identical for Plans I and II? (Do not round intermediate calculations.)
	a. Plan I $5.27selected answer incorrect Plan II $5.36selected answer incorrect All-equity $5.54selected answer incorrect b. Plan I and all-equity $71,250selected answer correct Plan II and all-equity $71,250selected answer correct c. EBIT $71,250selected answer correct d-1. Plan I $4.16selected answer incorrect Plan II $4.23selected answer incorrect All-equity $4.38selected answer incorrect d-2. Plan I and all-equity $71,250selected answer correct Plan II and all-equity $71,250selected answer correct EBIT $71,250

Answer 1