Destin 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? (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?
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?
EBIT $
d-1 Assuming that the corporate tax rate is 40 percent, what is the EPS of the firm? (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?
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?
EBIT $
Destin 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? (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? |
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? |
EBIT | $ |
d-1 | Assuming that the corporate tax rate is 40 percent, what is the EPS of the firm? (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? |
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? |
EBIT | $ |