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Dickson Corporation is comparing two different capital structures. Plan I would result in 35,000 shares of stock and $100,500 in debt. Plan II would result
Dickson Corporation is comparing two different capital structures. Plan I would result in 35,000 shares of stock and $100,500 in debt. Plan II would result in 29,000 shares of stock and $301,500 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 $140,000. The all-equity plan would result in 38,000 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 21 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 21 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 21 percent, when will EPS be identical for Plans I and II? (Do not round intermediate calculations.) |
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