Plot the two capital structures on a set of ebit-eps axes

Reference no: EM13293104

Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 40% tax rate.

Source of capital Structure A Structure B
Long-term debt $100,000 at 16% coupon rate $200,000 at 17% coupon rate
Common stock 4,000 shares 2,000 shares

a. Calculate two EBIT-EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values.
b. Plot the two capital structures on a set of EBIT-EPS axes.
c. Indicate over what EBIT range, if any, each structure is preferred.
d. Discuss the leverage and risk aspects of each structure.
e. If the firm is fairly certain that its EBIT will exceed $75,000, which structure would you recommend? Why?

Reference no: EM13293104

Questions Cloud

What effects on mammoth would result from the stock split : Mammoth Corporation is considering a 3-for-2 stock split. It currently has the stockholders' equity position shown. The current stock price is $120 per share. The most recent period's earnings available for common stock are included in retained ea..

Explain what will be the final pressure in the container : In a 4.09 liter container at 25C are placed 1.23 moles of O2 gas and 3.20 moles of solid C(graphite). If the carbon and oxygen react completely to form CO(g) what will be the final pressure in the container at 25C

Find internal self inductance per unit length of loss-less : Using energy concepts, find the internal self inductance per unitlength of a loss-less, conductive solid wire of radius ρ. You may assume that the current is uniformlydistributed through the cross-section of the wire.

Describe a residual dividend policy : Compare, contrast, and discuss the amount of dividends (calculated in part b) associated with each of the three capital expenditure amounts.

Plot the two capital structures on a set of ebit-eps axes : Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 40% tax rate.

Evaluate the volume of 6 m naoh required to react : Calculate the volume of 6 M NaOH required to react completely with the amount of methyl salicylate you used. How much of the 6 M NaOH that you used was in excess of the theoretical amount?

Determine the electric field amplitude inside inner cylinder : A coaxial transmission line consists of two concentric cylinders.The inner cylinder has radius r1 and the outer cylinder has radius r2. The inner cylinder has a surfacecharge density ρS C.m-2, that is uniformly distributed along its length.

Complete first-order reactions with rate constants : Why is this only an approximation? Under what conditions can the selectivityremain temperature-independent?

User Account

All Pages