Question
Silverton Co. is comparing two different capital structures. Plan I would result in 11,000 shares of stock and $370,000 in debt. Plan II would result
Silverton Co. is comparing two different capital structures. Plan I would result in 11,000 shares of stock and $370,000 in debt. Plan II would result in 12,100 shares of stock and $329,300 in debt. The interest rate on the debt is 10 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $54,700. The all-equity plan would result in 21,000 shares of stock outstanding. Compute the EPS for each plan. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
EPS | |
Plan I | $ |
Plan II | $ |
All-equity plan | $ |
b. In part (a), what is the break-even level of EBIT for Plan I as compared to that for an all-equity plan? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) EBIT $ In part (a), what is the break-even level of EBIT for Plan II as compared to that for an all-equity plan? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) EBIT $ c. Ignoring taxes, at what level of EBIT 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 $ d. Assume the corporate tax rate is 30 percent. Compute the EPS for each plan. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
EPS | |
Plan I | $ |
Plan II | $ |
All-equity plan | $ |
What is the break-even level of EBIT for Plan I as compared to that for an all-equity plan? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) EBIT $ What is the break-even level of EBIT for Plan II as compared to that for an all-equity plan? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) EBIT $ At what level of EBIT 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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