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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.
Moraine, Inc., has an issue of preferred stock outstanding that pays a $3.15 dividend every year in perpetuity. If this issue currently sells for $92 per share, what is the required return?
Brighton Corp. bought an oil rig exactly 6 years ago for $109,000,000. Brighton depreciates oil rigs straight line over 10 years assuming no salvage value. The rig was just sold to British Petroleum for $34,000,000. What Capital Gain/Loss will Bright..
Two 100-horsepower motors are under consideration by the Mighty Machinery Company. Motor Q costs $5,000 and operates at 90% efficiency. Motor R costs $3,500 and is 88% efficient. How many hours of full-load operation are necessary each year in order ..
Give examples of how ratios gleaned from the financial statements can be used as a tool in helping a firm plan for the future. What do these ratios tell an individual analyzing them? What limitations prevent the forecasts from being foolproof?
Thomas Brothers is expected to pay a $3.3 per share dividend at the end of the year (that is, D1 = $3.3). The dividend is expected to grow at a constant rate of 3% a year. The required rate of return on the stock, rs, is 17%. What is the stock's curr..
According to the NPV, which franchise or franchises would be accepted if they are independent? Which could be accepted if they are mutually exclusive? Evaluate each franchise's NPV? Be sure to show your calculations.
you realize your company would make a significant profit from doing business in China. You also discover that policies on employee welfare, labor relations, etc. are the antithesis of what your CEO firmly believes.
The Booth Company’s sales are forecasted to double from $1,000 in 2013 to $2,000 in 2014. Here is the December 31, 2013, balance sheet: Booth’s fixed assets were used to only 50% of capacity during 2013, but its current assets were at their proper le..
Stock R has a beta of 1.1, Stock S has a beta of 0.60, the expected rate of return on an average stock is 8%, and the risk-free rate is 5%. By how much does the required return on the riskier stock exceed the required return on the riskier stock exce..
Without referring to the pre programmed function on your financial calculator, use the basic formula for the present value, along with the given opportunity cost r, and the number of periods, n, to calculate the present value of $1 in the case shown ..
Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $18,300, and that for the pulley system is $20,..
Discuss the culture of the country
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