Question
Please answer d1. Coldstream Corp. is comparing two different capital structures. Plan I would result in 14,000 shares of stock and $95,000 in debt. Plan
Please answer d1.
Coldstream Corp. is comparing two different capital structures. Plan I would result in 14,000 shares of stock and $95,000 in debt. Plan II would result in 8,000 shares of stock and $190,000 in debt. The interest rate on the debt is 9 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $80,000. The all-equity plan would result in 20,000 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 | $ | ||
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