b. Which of the following EBIT-EPS plots correctly depicts Wells and Associates' financing plan? Graph 1 (Select from the drop-down menu.) EPS ($) 2.5 Graph of Financing Plan Q 3- 2- 1.5- 1- 0.5- 0- 10 20 30 40 50 60 70 80 -0.5 -1- -1.5 -2- EBIT ($000) EPS ($) 3- 2.5- Graph 2 Graph of Financing Plan 2- 1.5- 1- 0.5- 0- 10 20 30 40 50 60 70 80 -0.5 -1- -1.5- -2- EBIT (5000) Q Q ☑ d. Which of the following plots of the financing plan compares the option in part (b) with the one including the 1,200 shares of $5.75 preferred stock of part (c)? the drop-down menu.) (Select from EPS ($) Graph 1 Graph of Financing Plan Q 3- 2.5- Original 2- Revised 1.5 1- 0.5- 0- 10 20 30 40 50 60 70 80 -0.5 -1- -1.5- -2- EBIT ($000) EPS ($) Graph 2 Graph of Financing Plan Q 3- 2.5- 2 Original Revised 1.5- 1- 0.5- 0- 10 20 40 50 60 70 80 -0.5 -1+ -1.5 -2- EBIT ($000)
b. Which of the following EBIT-EPS plots correctly depicts Wells and Associates' financing plan? Graph 1 (Select from the drop-down menu.) EPS ($) 2.5 Graph of Financing Plan Q 3- 2- 1.5- 1- 0.5- 0- 10 20 30 40 50 60 70 80 -0.5 -1- -1.5 -2- EBIT ($000) EPS ($) 3- 2.5- Graph 2 Graph of Financing Plan 2- 1.5- 1- 0.5- 0- 10 20 30 40 50 60 70 80 -0.5 -1- -1.5- -2- EBIT (5000) Q Q ☑ d. Which of the following plots of the financing plan compares the option in part (b) with the one including the 1,200 shares of $5.75 preferred stock of part (c)? the drop-down menu.) (Select from EPS ($) Graph 1 Graph of Financing Plan Q 3- 2.5- Original 2- Revised 1.5 1- 0.5- 0- 10 20 30 40 50 60 70 80 -0.5 -1- -1.5- -2- EBIT ($000) EPS ($) Graph 2 Graph of Financing Plan Q 3- 2.5- 2 Original Revised 1.5- 1- 0.5- 0- 10 20 40 50 60 70 80 -0.5 -1+ -1.5 -2- EBIT ($000)
Excel Applications for Accounting Principles
4th Edition
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Gaylord N. Smith
Chapter27: Time Value Of Money (compound)
Section: Chapter Questions
Problem 2R
Related questions
Question
Wells and Associates has EBIT of $ 72800. Interest costs are $ 18400, and the firm has 15600 shares of common stock outstanding. Assume a 40 % tax rate.
a. Use the degree of financial leverage (DFL) formula to calculate the DFL for the firm. b. Using a set of EBIT -EPS axes, plot Wells and Associates' financing plan. c. If the firm also has 1200 shares of preferred stock paying a $ 5.75 annual dividend per share, what is the DFL? d. Plot the financing plan, including the 1200 shares of $ 5.75 preferred stock, on the axes used in part (b). e. Briefly discuss the graph of the two financing plans.
Transcribed Image Text:b. Which of the following EBIT-EPS plots correctly depicts Wells and Associates' financing plan?
Graph 1
(Select from the drop-down menu.)
EPS ($)
2.5
Graph of Financing Plan
Q
3-
2-
1.5-
1-
0.5-
0-
10
20
30
40 50
60
70
80
-0.5
-1-
-1.5
-2-
EBIT ($000)
EPS ($)
3-
2.5-
Graph 2
Graph of Financing Plan
2-
1.5-
1-
0.5-
0-
10
20
30
40 50
60 70 80
-0.5
-1-
-1.5-
-2-
EBIT (5000)
Q
Q
☑
Transcribed Image Text:d. Which of the following plots of the financing plan compares the option in part (b) with the one including the 1,200 shares of $5.75 preferred stock of part (c)?
the drop-down menu.)
(Select from
EPS ($)
Graph 1
Graph of Financing Plan
Q
3-
2.5-
Original
2-
Revised
1.5
1-
0.5-
0-
10 20
30
40
50
60
70
80
-0.5
-1-
-1.5-
-2-
EBIT ($000)
EPS ($)
Graph 2
Graph of Financing Plan
Q
3-
2.5-
2
Original
Revised
1.5-
1-
0.5-
0-
10
20
40
50
60
70
80
-0.5
-1+
-1.5
-2-
EBIT ($000)
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