Haskell 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 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 $
| Haskell 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 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 | $ |
Related questions
| Haskell Corp. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $80,000 in debt. Plan II would result in 7,500 shares of stock and $120,000 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 $50,000. The all-equity plan would result in 12,000 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 | $ |
| Haskell Corp. is comparing two different capital structures. Plan I would result in 13,000 shares of stock and $100,000 in debt. Plan II would result in 10,500 shares of stock and $150,000 in debt. The interest rate on the debt is 10 percent.
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