Cooke Co. is comparing two different capital structures. Plan I would result in 10,500 shares of stock and $296,000 in debt. Plan II would result in 12,500 shares of stock and $222,000 in debt. The interest rate on the debt is 9 percent.
Requirement 1: Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $53,400. The all-equity plan would result in 18,500 shares of stock outstanding. Compute the EPS for each plan. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
EPS Plan I $ 2.55 Plan II $ 2.67 All-equity plan $ 2.89
Requirement 2:
(a) In Requirement (1), 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.) EBIT $ 56,948.11
(b) In Requirement (1), 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.) EBIT $
Requirement 3: Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) EBIT $
Requirement 4: Assume the corporate tax rate is 35 percent.
(a) Compute the EPS for each plan. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) EPS Plan I $ Plan II $ All-equity plan $
(b) 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.) EBIT $
(c) 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.) EBIT $ (d) At what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) EBIT $
Please show every step for the break-even level of EBIT calculation. Thank you.
Cooke Co. is comparing two different capital structures. Plan I would result in 10,500 shares of stock and $296,000 in debt. Plan II would result in 12,500 shares of stock and $222,000 in debt. The interest rate on the debt is 9 percent.
Requirement 1: Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $53,400. The all-equity plan would result in 18,500 shares of stock outstanding. Compute the EPS for each plan. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
EPS Plan I $ 2.55 Plan II $ 2.67 All-equity plan $ 2.89
Requirement 2:
(a) In Requirement (1), 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.) EBIT $ 56,948.11
(b) In Requirement (1), 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.) EBIT $
Requirement 3: Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) EBIT $
Requirement 4: Assume the corporate tax rate is 35 percent.
(a) Compute the EPS for each plan. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) EPS Plan I $ Plan II $ All-equity plan $
(b) 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.) EBIT $
(c) 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.) EBIT $ (d) At what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) EBIT $
Please show every step for the break-even level of EBIT calculation. Thank you.
Related questions
Silverton Co. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $315,000 in debt. Plan II would result in 12,000 shares of stock and $210,000 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 $53,200. 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 32 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 $
References
eBook & Resources
| 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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