01 Aug Finance 427
| 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 | $ [removed] | |
| Plan II | $ [removed] | |
| All equity | $ [removed] | |
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| 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 | $ [removed] | |
| Plan II and all-equity | $ [removed] | |
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| c. | Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? |
| EBIT | $ [removed] |
| 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 | $ [removed] | |
| Plan II | $ [removed] | |
| All equity | $ [removed] | |
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| 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 | $ [removed] | |
| Plan II and all-equity | $ [removed] | |
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| d-3 | Assuming that the corporate tax rate is 40 percent, when will EPS be identical for Plans I and II? |
| EBIT | $ [removed] |
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