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

Solutions

Expert Solution

jeff jeffy answered 8 months ago

Next > < Previous

Related Solutions

Robert is comparing two different capital structures: An all-equity plan (Plan I) and a levered plan...

Robert 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 and round your...

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...

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....

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...

Rolston Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered...

Rolston Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Rolston would have 185,000 shares of stock outstanding. Under Plan II, there would be 135,000 shares of stock outstanding and $2.70 million in debt outstanding. The interest rate on the debt is 5 percent and there are no taxes. a. If EBIT is $375,000, what is the EPS for each plan? (Do not round intermediate calculations and...

Subjects