Each plan as compared to that for an all-equity plan

Assignment Help Financial Management

Reference no: EM132037108

Destin Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of stock and $90,000 in debt. Plan II would result in 7,600 shares of stock and $198,000 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 $48,000. The all-equity plan would result in 12,000 shares of stock outstanding. What is the EPS for each of these plans? (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?

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?

EBIT $

d-1 Assuming that the corporate tax rate is 40 percent, what is the EPS of the firm? (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?

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?

EBIT $

Reference no: EM132037108

Questions Cloud

When would you need to modify a policy : 1. List three important factors to be considered when documenting the outcomes of the sustainability policy and write their importance.

Positive and negative tolerance : What are the differences between positive and negative tolerance?

Exchange rate plays an important role in international trade : The exchange rate plays an important role in the international trade.

Continuum of channel richness : The Continuum of Channel Richness - which of those forms (face-to-face verbal, email, telephone, memos/letters, formal report)

Each plan as compared to that for an all-equity plan : What are the break-even levels of EBIT for each plan as compared to that for an all-equity plan?

Calculate the nominal interest rate : lf the inflation rate is 10 percent and the "real" interest rate is 12 percent, the nominal interest rate is. Fiscal policy is controlled by

Divisional profit as the basis of incentive compensation : What are the advantages and disadvantages of using divisional profit as the basis of incentive compensation for division managers compared

Procedures and practices that support effective risk : Why each organisation should have policies, procedures and practices that support effective risk identification?

Application of risk management plans and strategies : How the International Standard can assist with the development and application of risk management plans and strategies?

User Account

All Pages