Des Chatels Corp. 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 10,400 shares of stock and $243,600 in debt. The interest rate on the debt is 10%. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $56,000. The all-equity plan would result in 16,000 shares of stock outstanding. What is the EPS for each of these plans? (Round the final answers to 2 decimal places. Omit $ sign in your response.) EPS Plan I $ Plan II All equity $ b. In part (a), what are the breakeven levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations. Omit $ sign in your response.)
Des Chatels Corp. 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 10,400 shares of stock and $243,600 in debt. The interest rate on the debt is 10%. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $56,000. The all-equity plan would result in 16,000 shares of stock outstanding. What is the EPS for each of these plans? (Round the final answers to 2 decimal places. Omit $ sign in your response.) EPS Plan I $ Plan II All equity $ b. In part (a), what are the breakeven levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations. Omit $ sign in your response.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Can i please get help with the practice question, i attached it below. Thank you. I need it soon too
Transcribed Image Text:Des Chatels Corp. 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 10,400 shares of stock and $243,600 in debt. The interest rate on the debt is 10%.
a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $56,000. The all-equity plan would
result in 16,000 shares of stock outstanding. What is the EPS for each of these plans? (Round the final answers to 2 decimal places.
Omit $ sign in your response.)
EPS
Plan I
$
Plan II
$
All equity
2$
b. In part (a), what are the breakeven levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round
intermediate calculations. Omit $ sign in your response.)
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? (Do not round intermediate calculations. Omit $ sign in
your response.)
EBIT
$
d-1 Assuming that the corporate tax rate is 40%, what is the EPS of the firm? (Round the final answers to 2 decimal places. Omit $
sign in your response.)
EPS
Plan I
$
Plan II
2$
All equity
$
Transcribed Image Text:d-2 Assuming that the corporate tax rate is 40%, what are the breakeven levels of EBIT for each plan as compared to that for an all-
equity plan? (Do not round intermediate calculations. Omit $ sign in your response.)
EBIT
Plan I and all-equity
$
Plan II and all-equity
d-3 Assuming that the corporate tax rate is 40%, when will EPS be identical for Plans I and II? (Do not round intermediate calculations.
Omit $ sign in your response.)
EBIT
%24
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