Question
In: Finance
Firuley is comparing two different capital structures. Plan I would result in 12,000 shares of stock...
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Firuley is comparing two different capital structures. Plan I would result in 12,000 shares of stock and $120,000 in debt. Plan II would result in 11,500 shares of stock and $140,000 in debt. The interest rate on the debt is 6 percent. NOT IN EXCE L PLEASE |
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a. |
Ignoring taxes, compare both plans to an all-equity plan assuming that EBIT will be $70,000. The all-equity plan would result in 15,000 shares of stock outstanding. What is the EPS for each of these plans? |
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b. |
In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? |
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c. |
Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? |
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d-1. |
If the corporate tax rate is 40 percent, what is the EPS of the firm? |
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d-2. |
If the corporate tax rate is 40 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? |
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d-3. |
If the corporate tax rate is 40 percent, when will EPS be identical for Plans I and II? |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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