Question
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Wagner Industries is comparing two different capital structures. Plan I would result in 9,500 shares of...
Wagner Industries is comparing two different capital structures. Plan I would result in 9,500 shares of stock and $361,000 in debt. Plan II would result in 12,000 shares of stock and $238,000 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 $71,000. The all-equity plan would result in 19,000 shares of stock outstanding. Which of these three plans has the highest EPS? The lowest?
b. In question (1), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? Is one higher than the other? Why?
c. Ignoring taxes, when will EPS be identical for Plans I and II?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Wagner Industries is comparing two different capital structures. Plan I would result in 9,500 shares of...
Wagner Industries is comparing two different capital structures.
Plan I would result in 9,500 shares of stock and $361,000 in debt.
Plan II would result in 12,000 shares of stock and $238,000 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 $71,000. The all-equity plan would result in
19,000 shares of stock outstanding. Which of these three plans has
the highest...
1. Wagner Industries is comparing two different capital structures. Plan I would result in 9,500 shares...
1. Wagner Industries is comparing two different
capital structures. Plan I would result in 9,500 shares of stock
and $361,000 in debt. Plan II would result in 12,000 shares of
stock and $238,000 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 $71,000. The all-equity plan would result in
19,000 shares of stock outstanding. Which of these three plans has
the...
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Honeycutt Co. is comparing two different capital structures.
Plan I would result in 22,000 shares of stock and $79,500 in debt.
Plan II would result in 16,000 shares of stock and $238,500 in
debt. The interest rate on the debt is 6 percent.
a.
Ignoring taxes, compare both of these plans to an all-equity
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Plan I would result in 16,000 shares of stock and $100,000 in debt.
Plan II would result in 12,000 shares of stock and $200,000 in
debt. The interest rate on the debt is 6 percent. a. Ignoring
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Plan I would result in 12,000 shares of stock and $100,000 in debt.
Plan II would result in 4,000 shares of stock and $200,000 in debt.
The interest rate on the debt is 8 percent. a. Ignoring taxes,
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Plan I would result in 8,000 shares of stock and $410,400 in debt.
Plan II would result in 12,450 shares of stock and $250,200 in
debt. The interest rate on the debt is 10 percent. a. Ignoring
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Destin Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of...
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interest rate on the debt is 10 percent.
a.
Ignoring taxes, compare both of these plans to an all-equity
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Silverton Co. is comparing two different capital structures. Plan I would result in 8,500 shares of...
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Plan II would result in 12,000 shares of stock and $280,000 in
debt. The interest rate on the debt is 11 percent.
a. Ignoring taxes, compare both of these plans to
an all-equity plan assuming that EBIT will be $54,500. The
all-equity plan would result in 20,000 shares of stock outstanding.
Compute the EPS for each plan. (Do not...
Destin Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of...
Destin Corp. is comparing two different capital structures. Plan
I would result in 10,000 shares of stock and $100,000 in debt. Plan
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interest rate on the debt is 6 percent.
a.
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Silverton Co. is comparing two different capital structures. Plan I would result in 9,000 shares of...
Silverton Co. is comparing two different capital structures.
Plan I would result in 9,000 shares of stock and $342,000 in debt.
Plan II would result in 12,600 shares of stock and $205,200 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 $53,500. The
all-equity plan would result in 18,000 shares of stock outstanding.
Compute the EPS for each plan. (Do not...
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