Question
Haskell Corp. is comparing two different capital structures. Plan I would result in 12,000 shares of stock and $100,000 in debt. Plan II would result
Haskell Corp. is comparing two different capital structures. Plan I would result in 12,000 shares of stock and $100,000 in debt. Plan II would result in 8,700 shares of stock and $155,000 in debt. The interest rate on the debt is 5 percent. Compare both of these plans to an all-equity plan assuming that EBIT will be $80,000. The all-equity plan would result in 18,000 shares of stock outstanding. Assuming that the corporate tax rate is 40 percent, 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.)
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? (Do not round intermediate calculations.)
EPS under Plan I = $
EPS under Plan II = $
EPS under All equity = $
Breakeven EBIT for Plan I and all-equity = $
Breakeven EBIT for Plan II and all-equity = $
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