Question

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 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?

EBIT $

EBIT $

Compute the EPS for each plan.

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?

EBIT $

At what level of EBIT will EPS be identical for Plans I and II?

EBIT $

Answer #1

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Plan II would result in 12,000 shares of stock and $280,000 in
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Please fill out whole
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