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Cooke Co. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $360,000 in debt. Plan II would result in 12,600 shares of stock and $216,000 in debt. The interest rate on the debt is 9 percent. Requirement 1: Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $53,700. The all-equity plan would result in 18,000 shares of stock outstanding. Compute the EPS for each plan. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) EPS Plan I $ Plan II $ All-equity plan $ Requirement 2: (a) In Requirement (1), what is the break-even level of EBIT for Plan I as compared to that for an all-equity plan? (Do not round intermediate calculations.) EBIT $ (b) In Requirement (1), what is the break-even level of EBIT for Plan II as compared to that for an all-equity plan? (Do not round intermediate calculations.) EBIT $ Requirement 3: Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) EBIT $ Requirement 4: Assume the corporate tax rate is 34 percent. (a) Compute the EPS for each plan. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) EPS Plan I $ Plan II $ All-equity plan $ (b) What is the break-even level of EBIT for Plan I as compared to that for an all-equity plan? (Do not round intermediate calculations.) EBIT $ (c) What is the break-even level of EBIT for Plan II as compared to that for an all-equity plan? (Do not round intermediate calculations.) EBIT $ (d) At what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) EBIT $ Referencese Book & Resources Worksheet Learning Objective: 13-01 discusses the effect of financial leverage.
Explain what it means to perfect the bank's security interest in collateral. When lending to a small business owner who is an owner/ manager, what methods might the bank use to perfect its interest in the collateral of the business?
Complete the balance sheet and sales information using the following financial data: totals assets turnover: 1.5x days sales outstanding: 41 days inventory turnover ratio: 7x fixed asset turnover:3.5x current ratio:1.7x gross profit margin on sales=2..
A SELLER would be responsible for providing all of these items EXCEPT
Logitech stock is currently selling for $30 per share. The next expected annual dividend is $3 at the end of this year and the dividend growth rate is 6% per year. What is the stock price at the start of year 4 (end of yr 3)?
Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $6 million to buy the machine and $10,000 to have it delivered and installed. Building a clean room in the plant for the machine will cost an..
Jack purchased 100 shares of Green Forest Inc. stock at a price of $157.65 three months ago. He sold all stocks today for $158.57. During this period the stock paid dividends of $5.67 per share. What is Jack's annualized holding period return (annual..
Compute the NPV for Project X with the cash flows shown below if the appropriate cost of capital is 9 percent. Time: 0 1 2 3 4 5 Cash flow: -155 -155 0 260 235 210 $503.73 $205.52 $206.53 $189.48
How does a company raise money (capital) for their projects? KOOKIS, Inc., has 3M shares of common stock, $20 per share. What is the market value of common equity? The company has 1M shares of preferred stock, $10 per share. What is the market value ..
Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 7%, and its stock price is $40 per share with 2 million shares outstanding. What is BEA's unlevered be..
Assume that a portfolio of corporate bonds is managed to maintain targets for modified duration at convexity. Explain how the portfolio could include both callable and non callable bonds while maintaining the targets. Describe one advantage and one d..
“Before there was Paris Hilton, there was Consuelo Vanderbilt Balsan – a Gilded Age heiress and socialite, re-nowned for her beauty and wealth. Now Ms. Balsan’s onetime Hamptons home is slated to hit the market priced at $28 million with Tim Davis of..
In many cases, banks do not permit depositors to spend the proceeds of a deposit until several days have elapsed. What risks do banks face in the check clearing process? Does this justify holds on checks?
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