Question
Destin Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of stock and $100,000 in debt. Plan II would result
Destin Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of stock and $100,000 in debt. Plan II would result in 5,000 shares of stock and $200,000 in debt. The interest rate on the debt is 6 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? (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? |
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