Dickson Corporation is comparing two different capital structures. Plan I would result in 12,700 shares of stock and $100,050 in debt. Plan II would result in 9,800 shares of stock and $226,200 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 $70,000. The all-equity plan would result in 15,000 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.) Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) c. d-1. Assuming that the corporate tax rate is 21 percent, what is the EPS of the firm? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) d-2. Assuming that the corporate tax rate is 21 percent, 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.) d-3. Assuming that the corporate tax rate is 21 percent, when will EPS be identical for Plans I and II? (Do not round intermediate calculations.) a. Plan I EPS a. Plan II EPS a. All-equity EPS b. Plan I and all-equity break-even EBIT b. Plan II and all-equity break-even EBIT c. Plan I and Plan II break-even EBIT d-1. Plan I EPS d-1. Plan II EPS d-1. All-equity EPS d-2. Plan I and all-equity break-even EBIT d-2. Plan II and all-equity break-even EBIT $ $ 6969 $ 69 4.72 4.83 4.67 $ 10,005 $ 22,620 $ 65,250 $ 12,700.00 $ 9,800.00 $ 65,250.00
Dickson Corporation is comparing two different capital structures. Plan I would result in 12,700 shares of stock and $100,050 in debt. Plan II would result in 9,800 shares of stock and $226,200 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 $70,000. The all-equity plan would result in 15,000 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.) Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) c. d-1. Assuming that the corporate tax rate is 21 percent, what is the EPS of the firm? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) d-2. Assuming that the corporate tax rate is 21 percent, 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.) d-3. Assuming that the corporate tax rate is 21 percent, when will EPS be identical for Plans I and II? (Do not round intermediate calculations.) a. Plan I EPS a. Plan II EPS a. All-equity EPS b. Plan I and all-equity break-even EBIT b. Plan II and all-equity break-even EBIT c. Plan I and Plan II break-even EBIT d-1. Plan I EPS d-1. Plan II EPS d-1. All-equity EPS d-2. Plan I and all-equity break-even EBIT d-2. Plan II and all-equity break-even EBIT $ $ 6969 $ 69 4.72 4.83 4.67 $ 10,005 $ 22,620 $ 65,250 $ 12,700.00 $ 9,800.00 $ 65,250.00
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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Transcribed Image Text:Dickson Corporation is comparing two different capital structures. Plan I would result in
12,700 shares of stock and $100,050 in debt. Plan II would result in 9,800 shares of
stock and $226,200 in debt. The interest rate on the debt is 10 percent.
a.
c.
Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT
will be $70,000. The all-equity plan would result in 15,000 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.)
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.)
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 21 percent, what is the EPS of the firm? (Do
not round intermediate calculations and round your answers to 2 decimal places,
e.g., 32.16.)
d-2. Assuming that the corporate tax rate is 21 percent, 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.)
d-3. Assuming that the corporate tax rate is 21 percent, when will EPS be identical for
Plans I and II? (Do not round intermediate calculations.)
a. Plan I EPS
a. Plan II EPS
a. All-equity EPS
b. Plan I and all-equity break-even EBIT
b. Plan II and all-equity break-even EBIT
c. Plan I and Plan II break-even EBIT
d-1. Plan I EPS
d-1. Plan II EPS
d-1. All-equity EPS
d-2. Plan I and all-equity break-even EBIT
d-2. Plan II and all-equity break-even EBIT
$
$
$
$
$
$
$
12,700.00
$
9,800.00
$ 65,250.00
4.72
4.83
4.67
10,005
22,620
65,250
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