Question
Kolby Corp. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $70,000 in debt. Plan II would result
Kolby Corp. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $70,000 in debt. Plan II would result in 3,000 shares of stock and $140,000 in debt. The interest rate on the debt is 5 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?(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 and round your answers to the nearest whole number, e.g., 32.)
EBIT
Plan I and all-equity $_______
Plan II and all-equity $_______
c.Ignoring taxes, at what level of EBITwill EPS be identical for Plans I and II?(Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
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 and round your answers to the nearest whole number, e.g., 32.)
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?(Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
EBIT $______
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