Break-Even EBIT [LO1] James Corporation is comparing two different capitalstructures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I thecompany would have 160,000 shares of stock outstanding. Under Plan II, therewould be 80,000 shares of stock outstanding and $2.8 million in debt outstanding.The interest rate on the debt is 8 percent, and there are no taxes.a. If EBIT is $350,000, which plan will result in the higher EPS?b. If EBIT is $500,000, which plan will result in the higher EPS?c. What is the break-even EBIT?4.Ito find the

a) The computation of EPS is as follows: Plan 1:

Answered: Break-Even EBIT [LO1] James Corporation…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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4. A company that has an EPS of $ 7.00, with sales of $ 1,000,000.00, share capital of $ 2,500,000.00 with a value of $ 100.00 per share, that expects to maintain its sales and that wants to estimate what would happen if it modified its capital structure with a debt of 25 %, 50% and 75% with interest rates of 10%, 12% and 18% respectively, you can be sure of:a) That its EPS will increase as the capital structure is increasingly transferred to debt.b) That its EPS will remain the same regardless of the capital structure chosen.c) That its EPS will decrease as the capital structure is increasingly transferred to debt.
None
Break-even EBIT (with and without taxes). Alpha Company is looking at two different capital structures, one an all-equity firm and the other a levered firm with $2.88 million of debt financing at 9% interest. The all-equity firm will have a value of $9.6 million and 480,000 shares outstanding. The levered firm will have 336,000 shares outstanding. a. Find the break-even EBIT for Alpha Company using EPS if there are no corporate taxes. b. Find the break-even EBIT for Alpha Company using EPS if the corporate tax rate is 40%. c. What do you notice about these two break-even EBITs for Alpha Company?
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MM Model with Zero Taxes An unlevered firm has a value of $625 million. An otherwise identical but levered firm has $75 million in debt. Under the MM zero-tax model, what is the value of the levered firm? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to the nearest whole number. LA million
Bha
A5 6e DEF Company is comparing three different capital structures. Plan A is an all-equity plan and would result in 1000 shares of stock. Plan B would result in 700 shares of stock and $13,500 in debt. Plan C would result in 800 shares of stock and $9000 in debt. The firm’s EBIT will be $10,000 per year until infinity. The interest rate on the debt is 12%. e. Ignoring taxes, what is the break-even EBIT that will cause the EPS on Plan B to be equal to the EPS on Plan C?
Question 13 (Group 12 & Group 4 [Acc]) Assume that in the optimal capital structure: wD = 40%, wC = 50%, wP = 10%. Of the 50% that comes from common stock 80% will be generated internally through retained earnings; 20% through newly issued equity. Now we just have to estimate the costs of the individual funding sources, the rates. The marginal corporate tax rate is 30%. Use the following information to find rates: If new debt were issued it would have a coupon rate of 9%, a maturity of 10 years, and a face value of Tshs 1,000. It is expected that since investor's opportunity cost is also 9%, that the new debt could be sold at face value. Issue costs are Tshs 30/share. ii. Newly issued preferred stock would have a par value of Tshs 50, a dividend of Tshs 6/share, and flotation costs of Tshs 1.75/share. Assume that this newly issued preferred stock would be issued at par. i. The firm just issued a Tshs 5 dividend. Dividends are expected to grow at a rate of 10%/year, indefinitely. The…
Capital Structure Analysis The Rivoli Company has no debt outstanding, and its financial position is given by the following data: $ 45 6 ✔ Expected EBIT Growth rate in EBIT, gL Cost of equity, rs Shares outstanding, no Tax rate, T (federal-plus-state) a. What is Rivoli's intrinsic value of operations (i.e., its unlevered value)? Round your answer to the nearest dollar. 4500000✔✔ $ What is its intrinsic stock price? Its earnings per share? Round your answers to the nearest cent. Intrinsic stock price: $ Earnings per share: $ 4.50 b. Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 35% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 8%. Based on the new capital structure, what is the new weighted average cost of capital? Round your answer to three decimal places. 9.9 % What is the levered value of the firm? What is the…
Coroporate finance 1. SGS Company needs to introduce a new product to the market and need a capital of $100,000. SGS can acquire its capital from different sources. It Borrows $55,000 from the bank with an Interest rate of 12% and taxes are 40%; Issue preferred stocks for $15,000 with a floatation cost for 8% and each preferred stock price is 110$ and pays a dividend of 10$ and use the remaining needed capital from retained earnings, knowing that the common stock of XYZ is currently trading for 135$. and its earnings growth rate is 5%. If the WACC of SoS is 8.052% then how much is the difference between the dividend paid on preferred stock and the expected dividend paid of common stock (Round to the nearest number) * $10 O S7 $5 $3 None of the above

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