Question

Haskell Corp. is comparing two different capital structures. Plan I would result in 14,000 shares of stock and $100,000 in debt. Plan II would result in 8,000 shares of stock and $200,000 in debt. The interest rate on the debt is 6 percent.

  

a.

Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $80,000. The all-equity plan would result in 20,000 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.)

  

	EPS
Plan I	$
Plan II	$
All equity	$

  

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.)

  

	EBIT
Plan I and all-equity	$
Plan II and all-equity	$

  

c.	Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.)

  

EBIT

$

  

d-1	Assuming that the corporate tax rate is 40 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.)

	EPS
Plan I	$
Plan II	$
All equity	$

  

d-2	Assuming that 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? (Do not round intermediate calculations.)

  

	EBIT
Plan I and all-equity	$
Plan II and all-equity	$

  

d-3	Assuming that the corporate tax rate is 40 percent, when will EPS be identical for Plans I and II? (Do not round intermediate calculations.)

  

EBIT

$

Answer 1