Reference no: EM131191272

Cooke Co. is comparing two different capital structures. Plan I would result in 10,500 shares of stock and $296,000 in debt. Plan II would result in 12,500 shares of stock and $222,000 in debt. The interest rate on the debt is 9 percent.

Requirement 1:
Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $53,400. The all-equity plan would result in 18,500 shares of stock outstanding. Compute the EPS for each plan. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

EPS
Plan I $
Plan II $
All-equity plan $


Requirement 2:
(a) In Requirement (1), 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.)

EBIT $

(b) In Requirement (1), 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.)

EBIT $

Requirement 3:
Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.)

EBIT $

Requirement 4:
Assume the corporate tax rate is 35 percent.

(a) Compute the EPS for each plan. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

EPS
Plan I $
Plan II $
All-equity plan $


(b) 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.)

EBIT $

(c) 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.)

EBIT $

(d) At what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.)

EBIT