Honeycutt Co. is comparing two different capital structures. Plan I would result in 36,000 shares of stock and $103,500 in debt. Plan Il would result in 30,000 shares of stock and $310,500 in debt. The interest rate on the debt is 4 percent. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $145,000. The all-equity plan would result in 39,000 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.) a. c.
Honeycutt Co. is comparing two different capital structures. Plan I would result in 36,000 shares of stock and $103,500 in debt. Plan Il would result in 30,000 shares of stock and $310,500 in debt. The interest rate on the debt is 4 percent. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $145,000. The all-equity plan would result in 39,000 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.) a. c.
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:Honeycutt Co. is comparing two different capital structures. Plan I would result in 36,000
shares of stock and $103,500 in debt. Plan II would result in 30,000 shares of stock and
$310,500 in debt. The interest rate on the debt is 4 percent.
Ignoring taxes, compare both of these plans to an all-equity plan assuming that
EBIT will be $145,000. The all-equity plan would result in 39,000 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.
a.
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 22 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 22 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.)
c.
d-3. Assuming that the corporate tax rate is 22 percent, when will EPS be identical for
Plans I and I? (Do not round intermediate calculations.)
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