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? (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 30
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
$
Get Answers For Free
Most questions answered within 1 hours.