Question

Silverton Co. is comparing two different capital structures. Plan I would result in 8,500 shares of...

Silverton Co. is comparing two different capital structures. Plan I would result in 8,500 shares of stock and $402,500 in debt. 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 round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

EPS
Plan I $
Plan II $
All-equity plan $


b. In part (a), what is the break-even level of EBIT for Plan I as compared to that for an all-equity plan? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

EBIT            $

In part (a), what is the break-even level of EBIT for Plan II as compared to that for an all-equity plan? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

EBIT            $

c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

EBIT            $

d. Assume the corporate tax rate is 34 percent.

Compute the EPS for each plan. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

EPS
Plan I $
Plan II $
All-equity plan $


What is the break-even level of EBIT for Plan I as compared to that for an all-equity plan? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

EBIT            $

What is the break-even level of EBIT for Plan II as compared to that for an all-equity plan? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

EBIT            $

At what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

EBIT            $

Homework Answers

Answer #1

1.
=(54500-402500*11%)/8500=1.20294117647059

2.
=(54500-280000*11%)/12000=1.975

3.
=(54500)/20000=2.725

4.
=(402500*11%)/(1-8500/20000)=77000

5.
=(280000*11%)/(1-1200/20000)=32765.9574468085

6.
=(12000*402500*11%-8500*280000*11%)/(12000-8500)=77000

7.
=(54500-402500*11%)*(1-34%)/8500=0.793941176470588

8.
=(54500-280000*11%)*(1-34%)/12000=1.3035

9.
=(54500)*(1-34%)/20000=1.7985

10.
=(402500*11%)/(1-8500/20000)=77000

11.
=(280000*11%)/(1-1200/20000)=32765.9574468085

12.
=(12000*402500*11%-8500*280000*11%)/(12000-8500)=77000

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
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...
Silverton Co. is comparing two different capital structures. Plan I would result in 8,000 shares of...
Silverton Co. is comparing two different capital structures. 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 taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $53,300. The all-equity plan would result in 19,400 shares of stock outstanding. Compute the EPS for each plan. (Do not...
Please fill out whole chart !!!! Silverton Co. is comparing two different capital structures. Plan I...
Please fill out whole chart !!!! Silverton Co. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $306,000 in debt. Plan II would result in 12,150 shares of stock and $198,900 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 $54,400. The all-equity plan would result in 18,000 shares of stock outstanding. Compute the...
Kolby Corp. is comparing two different capital structures. Plan I would result in 12,000 shares of...
Kolby Corp. is comparing two different capital structures. 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, compare both of these plans to an all-equity plan assuming that EBIT will be $70,000. The all-equity plan would result in 20,000 shares of stock outstanding. What is the EPS for each of...
Coldstream Corp. is comparing two different capital structures. Plan I would result in 9,000 shares of...
Coldstream Corp. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $70,000 in debt. Plan II would result in 3,000 shares of stock and $140,000 in debt. The interest rate on the debt is 5 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $60,000. The all-equity plan would result in 15,000 shares of stock outstanding. What is the EPS for each of these...
Kolby Corp. is comparing two different capital structures. Plan I would result in 14,000 shares of...
Kolby Corp. is comparing two different capital structures. Plan I would result in 14,000 shares of stock and $95,000 in debt. Plan II would result in 8,000 shares of stock and $190,000 in debt. The interest rate on the debt is 9 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...
Bellwood Corp. is comparing two different capital structures. Plan I would result in 32,000 shares of...
Bellwood Corp. is comparing two different capital structures. Plan I would result in 32,000 shares of stock and $94,500 in debt. Plan II would result in 26,000 shares of stock and $283,500 in debt. The interest rate on the debt is 4 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $125,000. The all-equity plan would result in 35,000 shares of stock outstanding. What is the EPS for each of these...
Bellwood Corp. is comparing two different capital structures. Plan I would result in 22,000 shares of...
Bellwood Corp. 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 plan assuming that EBIT will be $75,000. The all-equity plan would result in 25,000 shares of stock outstanding. What is the EPS for each of...
Bellwood Corp. is comparing two different capital structures. Plan I would result in 21,000 shares of...
Bellwood Corp. is comparing two different capital structures. Plan I would result in 21,000 shares of stock and $78,000 in debt. Plan II would result in 15,000 shares of stock and $234,000 in debt. The interest rate on the debt is 5 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $70,000. The all-equity plan would result in 24,000 shares of stock outstanding. What is the EPS for each of these...
Silverton Co. is comparing two different capital structures. Plan I would result in 8,700 shares of...
Silverton Co. is comparing two different capital structures. Plan I would result in 8,700 shares of stock and $323,000 in debt. Plan II would result in 12,000 shares of stock and $210,800 in debt. The interest rate on the debt is 10 percent. The all-equity plan would result in 18,200 shares of stock outstanding. Ignore taxes for this problem. What is the price per share of equity under Plan I? (Do not round intermediate calculations and round your answer to...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT