Byrd Corporation is comparing two different capital structures, an all-equity plan (Plan I)and a levered plan (Plan II). Under Plan I, the company would have 185,000 shares ofstock outstanding. Under Plan II, there would be 135,000 shares of stock outstandingand $1.92 million in debt outstanding. The interest rate on the debt is 7 percent andthere are no taxes.a. Use MM Proposition I to find the price per share. (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g., 32.16.)b. What is the value of the firm under each of the two proposed plans? ((Do not roundintermediate calculations and enter your answers in dollars, not millions of dollars,rounded to the nearest whole number, e.g., 1,234,567.)a. Share priceb.All equity planLevered plan

To solve the problem using MM Proposition I, we need to find the share price and the value of the…

Answered: Byrd Corporation is comparing two…

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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c) Calculate the cost of ordinary shares for each capital structure.
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Becker industries is considering an all equity capital structure against one with both debt and equity. The all equity capital structure would consist of 34000 shares of stock. The debt and equity option would consist of 17000 shares of stock plus $265000 of debt with an interest rate of 8 percent. What is the break even level of earnings before interest and taxes between these two options? Ignore taxes
Foundation, Incorporated, is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 185,000 shares of stock outstanding. Under Plan II, there would be 135,000 shares of stock outstanding and $1.9 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes. a. If EBIT is $425,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. If EBIT is $675,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What is the break-even EBIT? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) a. Plan I EPS a. Plan II EPS b. Plan I EPS b. Plan II EPS c. Break-even EBIT
The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee's current capital structure calls for 50 percent debt, 25 percent preferred stock, and 25 percent common equity. Initially, common equity will be in the form of retained earnings (K) and then new common stock (K). The costs of the various sources of financing are as follows: debt (after-tax), 7.2 percent; preferred stock, 10.0 percent, retained earnings, 12.0 percent; and new common stock, 13.2 percent. a. What is the initial weighted average cost of capital? (Include debt, preferred stock, and common equity in the form of retained earnings, K.) Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. Debt Preferred stock Common equity Weighted average cost of capital Weighted Cost % Capital structure size (X) b. If the firm has $18.5 million in retained earnings, at what size capital structure will the firm run out of retained earnings? Note:…
Foundation, Incorporated, is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 200,000 shares of stock outstanding. Under Plan II. there would be 150,000 shares of stock outstanding and $2.15 million in debt outstanding. The Interest rate on the debt is 5 percent and there are no taxes. a. Use M&M Proposition I to find the price per share. (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of the firm under each of the two proposed plans? (Do not round Intermediate calculations and round your answers to the nearest whole dollar amount, e.g., 32) a. Share price b. All-equity firm value b. Levered plan firm value
Foundation, Inc., is comparing two different capital structures: an all- equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 145,000 shares of stock outstanding. Under Plan II, there would be 125, 000 shares of stock outstanding and $716, 000 in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes. a. If EBIT is $300, 000, which plan will result in the higher EPS? b . If EBIT is $600,000, which plan will result in the higher EPS? c. What is the break - even EBIT? d. use M&M Proposition I to find the price per share of equity under each of the two proposed plans. What is the value of the firm?
Dickson Corporation is comparing two different capital structures. Plan I would result in 26,000 shares of stock and $85,500 in debt. Plan II would result in 20,000 shares of stock and $256,500 in debt. The interest rate on the debt is 6 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $95,000. The all-equity plan would result in 29,000 shares of stock outstanding. What is the EPS for each of these plans? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.) c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) d-1. Assuming that the corporate tax rate is 22 percent, what is the EPS of the firm? (Do not round intermediate calculations and round your answers to 2…
Foundation, Inc., is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 145,000 shares of stock outstanding. Under Plan II, there would be 125,000 shares of stock outstanding and $716,000 in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes. Use M&M Proposition I to find the price per share of equity under each of the two proposed plans. What is the value of the firm? Input Area: Plan 1: Shares outstanding Plan II: Shares outstanding Debt outstanding Interest rate 2 ЕВIТ BEBIT 145,000 125,000 $716,000 8% $300,000 $600,000 1 5 (Use cells A6 to B13 from the given information
Trapper Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 180,000 shares of stock outstanding. Under Plan II, there would be 130,000 shares of stock outstanding and $2.27 million in debt outstanding. The interest rate on the debt is 8 percent and there are no taxes. a. Use M&M Proposition I to find the price per share. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of the firm under each of the two proposed plans? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) a. Share price b. All-equity firm value Levered plan firm value
XYZ is comparing two different capital structures. Plan I would result in 13,000 shares of stock and $130,500 in debt. Plan II would result in 10,000 shares of stock $243,600 in debt. The interest rate on the debt is 10%. a). Ignoring taxes, compare plans I and II to an all equity plan assuming that EBIT will be $56,000. The all equity plan will result in 16,000 shares of stock OUTSTANDING. Which of the 3 plans has the highest EPS? And which has the lowest? b). In part A, what are the break-even levels of EBIT for plan I compared to an all equity plan? What about for plan II I compared to an all equity plan? Is one higher than the other? Why (explain). c). Ignoring taxes, when will EPS be identical for plans I and II?
Foundation, Incorporated, is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 185,000 shares of stock outstanding. Under Plan II, there would be 135,000 shares of stock outstanding and $2.29 million in debt outstanding. The interest rate on the debt is 5 percent and there are no taxes. a. Use M&M Proposition I to find the price per share. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of the firm under each of the two proposed plans? (Do not round intermediate calculations and round your answers to the nearest whole dollar amount, e.g., 32.) a. Share price b. All-equity firm value b. Levered plan firm value

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