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Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Kyle would have 765,000 shares of stock outstanding. Under Plan II, there would be 515,000 shares of stock outstanding and $9.25 million in debt outstanding. The interest rate on the debt is 12 percent, and there are no taxes. Requirement 1: Assume that EBIT is $2.6 million. Compute the EPS for both Plan I and Plan II. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32 EPS
Plan I $
Plan II $
Requirement 2: Assume that EBIT is $3.1 million. Compute the EPS for both Plan I and Plan II. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
EPS Plan I $
Requirement 3: What is the break-even EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)
Break-even EBIT $
One position expressed in the financial literature is that firms set their dividends as a residual after using income to support new investments. A. Explain what a residual policy implies (assuming that all distributions are in the form of dividends)..
Target cost = $10,000,000, target profit = $850,000, target price = $10,850,000, sharing formula is 70/30 (buyer 70%, seller 30%), and ceiling price = $11,500,000. Assume that the seller completes the work at an actual cost of $10,050,000. What is th..
Eakins Inc.’s common stock currently sells for $55.00 per share, the company expects to earn $2.75 per share during the current year, its expected payout ratio is 70%, and its expected constant growth rate is 6.00%. New stock can be sold to the publi..
A financial analyst tells you that investing in stocks will allow you to double your money in 7 years. What annual rate of return is the analyst assuming you can earn?
A company's required rate of return is 9.5%, and last year the company generated $245.0 million of cash. If the company's cash flows will remain at $245.0 million forever, what is the company's value? If the company's cash flows grow at 3.5% forever,..
Apocalyptica Corporation is expected to pay the following dividends over the next four years: $5.90, $16.90, $21.90, and $3.70. Afterwards, the company pledges to maintain a constant 6.00 percent growth rate in dividends, forever.
The management of Greensboro Products has been evaluating the risk of the cash flows associated with a proposed new project. What is the probability that year 1 net cash flows will be negative?
The risk that the price of a bond will change due to changes in the interest rate is greater: Corporate bonds are shown on the balance sheet as:
A $1000 bond with semi-annual coupons, with coupon rate of 6% per annum convertible semi-annually, matures at par on October 15th, 2020. The bond is purchased on June 28th, 2005 to yield the investor a nominal rate of 7% per annum convertible semi-an..
Pharmecology is about to pay a dividend of $1.65 per share. It’s a mature company, but future EPS and dividends are expected to grow with inflation, which is forecasted at 4.25% per year. The nominal cost of capital is 11.00%. What is Pharmecology’s ..
Krystal Magee invested $150,000 17 months ago. Currently the investment is worth $170,000. Krystal knows that the investment paid interest monthly, but she does not know what yield on her investment. What is Krystal's annual percentage return (APR) a..
Kuhn Company is considering a new project that will require an initial investment of $4 million. It has a target capital structure of 58% debt, 6% preferred stock and 36% common equity. Flotation costs will represent 8% of the funds raised by issuing..
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