Question
If yo can please walk me through how to get the answer i may better understand. Coldstream Corp. is comparing two different capital structures. Plan
If yo can please walk me through how to get the answer i may better understand.
Coldstream Corp. is comparing two different capital structures. Plan I would result in 16,000 shares of stock and $100,000 in debt. Plan II would result in 13,000 shares of stock and $150,000 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 $90,000. The all-equity plan would result in 22,000 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.)
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? (Do not round intermediate calculations.)
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? (Do not round intermediate calculations.) EBIT $ d-1 Assuming that the corporate tax rate is 40 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.)
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? (Do not round intermediate calculations.)
EBIT | ||
Plan I and all-equity | $ | |
Plan II and all-equity | $ | |
d-3 Assuming that the corporate tax rate is 40 percent, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) EBIT $
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