Bellwood Corp. is comparing two different capital structures. Plan I would result in 27,000 shares of stock
Question:
Bellwood Corp. is comparing two different capital structures. Plan I would result in 27,000 shares of stock and $87,000 in debt. Plan II would result in 21,000 shares of stock and $261,000 in debt. The interest rate on the debt is 7 percent.
a.Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $100,000. The all-equity plan would result in 30,000 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.)
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.)c.Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II?(Do not round intermediate calculations.)d-1.Assuming that the corporate tax rate is 23 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.)d-2.Assuming that the corporate tax rate is 23 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.)d-3.Assuming that the corporate tax rate is 23 percent, when will EPS be identical for Plans I and II?(Do not round intermediate calculations.)
a.Plan I EPS:
Plan II EPS:
All equity EPS:
b.Plan I and all-equity break-even EBIT:
c.Plan II and all-equity break-even EBIT:
Plan I and Plan II break-even EBIT:
d-1.Plan I EPS:
Plan II EPS:
All equity EPS:
d-2.Plan I and all-equity break-even EBIT:
Plan II and all-equity break-even EBIT:
d-3.Plan I and Plan II break-even EBIT: