Firuley is comparing two different capital structures. Plan I would result in 12,000 shares of stock...

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

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?

b.	In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan?

c.	Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II?

d-1.

If the corporate tax rate is 40 percent, what is the EPS of the firm?

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?

d-3.

If the corporate tax rate is 40 percent, when will EPS be identical for Plans I and II?

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jeff jeffy answered 1 year ago

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