At what level of ebit eps be identical for plans i and ii

Reference no: EM13305576

Blue Stripes Co. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $342,000 in debt. Plan II would result in 12,600 shares of stock and $205,200 in debt. The interest rate on the debt is 10 percent.

Requirement 1:
Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $53,500. The all-equity plan would result in 18,000 shares of stock outstanding. Compute the EPS for each plan.

Requirement 2:
(a) In req. (1), what is the break-even level of EBIT for Plan I as compared to that for an all-equity plan?
(b) In req. (1), what is the break-even level of EBIT for Plan II as compared to that for an all-equity plan?

Requirement 3:
Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II?

Requirement 4:
Assume the corporate tax rate is 30 percent.
(a) Compute the EPS for each plan.
(b) What is the break-even level of EBIT for Plan I as compared to that for an all-equity plan?
(c) What is the break-even level of EBIT for Plan II as compared to that for an all-equity plan?
(d) At what level of EBIT will EPS be identical for Plans I and II?

Reference no: EM13305576

Questions Cloud

What is the expected cost for the material over the life : Using the estimates from (a) & (b), what is the expected cost for the material over the life of the project using the COMPLEX method?

Calculate the re-circulating load in the secondary crusher : A two stage crushing operation feeds 0.6 m diameter ore into a primary crusher at a rate of 25mt/hr. 80% of the ore feeds through an 0.2m screen into a secondary crusher. 65% of the ore from the secondary crusher comes out of a 50mm screen.

How far horizontally off the edge does it hit the water : a student throws a rock with speed 20.0 m/s at 30 degrees off the edge of a cliff. how far horizontally off the edge does it hit the water

At what level of ebit eps be identical for plans i and ii : Blue Stripes Co. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $342,000 in debt. Plan II would result in 12,600 shares of stock and $205,200 in debt. The interest rate on the debt is 10 percent.

Calculate the mass flow rate for the concentrate stream : A magnetic separator processes 500 kg/hr of finely ground magnetite ore (Fe3O4). The ore containes 35% magnetite and an analysis of the concentrate and tailings shows that they contain 59.5% Fe and 3.8% Fe

What must be the power of the horns output to achive : a ship's horn can be heard above typical background noise if at intensity level 20 dB. what must be the power of the horn's output to achive this level at 5.0 km away

What is the incremental free cash flow for year one : Working capital is expected to increase by $5,000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the incremental free cash flow for year one?

A power plant operates a regenerative rankine cycle : A power plant operates a regenerative Rankine cycle with a reheat, one closed and one open feedwater heater and has a net power output of 1.2 x 109 Btu/hr. When the steam exits the boiler it's temperature is 1000°F and its pressure is 1400psi...

User Account

All Pages