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 160,000 shares of stock outstanding. Under Plan II, there would be 110,000 shares of stock outstanding and $1.4 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes. a. If EBIT is $400,000, 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 $650,000, 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
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 160,000 shares of stock outstanding. Under Plan II, there would be 110,000 shares of stock outstanding and $1.4 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes. a. If EBIT is $400,000, 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 $650,000, 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
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: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 160,000
shares of stock outstanding. Under Plan II, there would be 110,000 shares of stock
outstanding and $1.4 million in debt outstanding. The interest rate on the debt is 7
percent, and there are no taxes.
a. If EBIT is $400,000, 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 $650,000, 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
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