> Frankline Coin, Inc. is considering two capital structures. The key information follows. Assume a 40 percent tax rate and expected EBIT of $50,000. Source of Capital Long-Term debt Common Stock Structure 1 $500,000 @ 8% 10,000 shares Structure 2 $350,000 @ 7% 20,000 shares (a) Calculate two EBIT-EPS coordinates for each of the structures. (b) Indicate over what FRIT range if any each str ture is preferred

> Frankline Coin, Inc. is considering two capital structures. The key information follows. Assume a 40 percent tax rate and expected EBIT of $50,000. Source of Capital Long-Term debt Common Stock Structure 1 $500,000 @ 8% 10,000 shares Structure 2 $350,000 @ 7% 20,000 shares (a) Calculate two EBIT-EPS coordinates for each of the structures. (b) Indicate over what FRIT range if any each str ture is preferred

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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Can you help me with B and c?
b) Calculate the cost of preferred shares for Y capital structure.
c) Calculate the cost of ordinary shares for each capital structure.
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
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
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?
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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 205,000 shares of stock outstanding. Under Plan II, there would be 155,000 shares of stock outstanding and $3.1 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes. a. If EBIT is $600,000, 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 $850,000, 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.) X Answer is not complete. $ a. Plan I EPS a. Plan II EPS b. Plan I EPS b. Plan II EPS c. Break-even EBIT 3.08 X

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