Des Chatels Corp. is comparing two different capital structures. Plan I would result in 13,000 shares...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Des Chatels Corp. is comparing two different capital structures. Plan I would result in 13,000 shares of stock and $130,500 in debt. Plan II would result in 10,400 shares of stock and $243,600 in debt. The interest rate on the debt is 10%. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $56,000. The all-equity plan would result in 16,000 shares of stock outstanding. What is the EPS for each of these plans? (Round the final answers to 2 decimal places. Omit $ sign in your response.) EPS Plan I $ Plan II $ All equity b. In part (a), what are the breakeven levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations. Omit $ sign in your response.) EBIT Plan I and all-equity Plan II and all-equity c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and lI? (Do not round intermediate calculations. Omit $ sign in your response.) EBIT 2$ d-1 Assuming that the corporate tax rate is 40%, what is the EPS of the firm? (Round the final answers to 2 decimal places. Omit $ sign in your response.) EPS Plan I $ Plan II $ All equity d-2 Assuming that the corporate tax rate is 40%, what are the breakeven levels of EBIT for each plan as compared to that for an all- equity plan? (Do not round intermediate calculations. Omit $ sign in your response.) ЕBIT Plan I and all-equity Plan II and all-equity d-3 Assuming that the corporate tax rate is 40%, when will EPS be identical for Plans I and II? (Do not round intermediate calculations. Omit $ sign in your response.) EBIT 2$ Des Chatels Corp. is comparing two different capital structures. Plan I would result in 13,000 shares of stock and $130,500 in debt. Plan II would result in 10,400 shares of stock and $243,600 in debt. The interest rate on the debt is 10%. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $56,000. The all-equity plan would result in 16,000 shares of stock outstanding. What is the EPS for each of these plans? (Round the final answers to 2 decimal places. Omit $ sign in your response.) EPS Plan I $ Plan II $ All equity b. In part (a), what are the breakeven levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations. Omit $ sign in your response.) EBIT Plan I and all-equity Plan II and all-equity c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and lI? (Do not round intermediate calculations. Omit $ sign in your response.) EBIT 2$ d-1 Assuming that the corporate tax rate is 40%, what is the EPS of the firm? (Round the final answers to 2 decimal places. Omit $ sign in your response.) EPS Plan I $ Plan II $ All equity d-2 Assuming that the corporate tax rate is 40%, what are the breakeven levels of EBIT for each plan as compared to that for an all- equity plan? (Do not round intermediate calculations. Omit $ sign in your response.) ЕBIT Plan I and all-equity Plan II and all-equity d-3 Assuming that the corporate tax rate is 40%, when will EPS be identical for Plans I and II? (Do not round intermediate calculations. Omit $ sign in your response.) EBIT 2$
Expert Answer:
Answer rating: 100% (QA)
Break even point X Interest N1 X Interest N2 X EBIT N1 Numbe... View the full answer
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Posted Date:
Students also viewed these accounting questions
-
Buchholz Corporation follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed policy. The firm's annual sales are...
-
The interest rate on an $859.50 debt was 10 1/4%. For how many months was the loan outstanding if it was settled with a payment of $907.22?
-
In January 2005, the interest rate on bonds was 4% a year and it was expected it to rise to 5% a year by the end of 2005. As the rate rose to 4.3% during February, most commentators focused, not on...
-
It is clear that Jaguar practices responsibility toward the environment. Using your knowledge gained from this Jaguar case study and further research, provide five (5) examples of how Jaguar is...
-
Distinguish among amortization, depreciation, and depletion.
-
The SECs proxy rule makes it increasingly difficult for proponents to resubmit proposals dealing with substantially the same subject matter as another proposal submitted within the previous five...
-
P(z < 2.46 or z > 2.46) Find the indicated probability using the standard normal distribution. If convenient, use technology to find the probability.
-
Daniel Glaser, chairman of the College of San antonios business department, needs to assign professors to courses next semester. As a criterion for judging who should teach each course, Professor...
-
Suppose the economy has the following consumption pattern Sandwich Hotdog Cell phone Super car 2019 Price $7 $3 $200 $5,000 Quantity 500 400 100 3 2020 Price $10 $5 $250 $7,000 Quantity 200 400 100 2...
-
You work in the human resources department of your company helping new employees fill out the necessary paperwork to get their first paycheck. There are a number of decisions that employees must make...
-
As per the unadjusted trial balance, the value of Supplies of a business is OMR5,000. It was found that the supplies used by the end of the year are OMR 2,000. What is adjusting entry to record the...
-
When a person faces a situation where playing one role becomes an obstacle for another because of the diversity in its nature, it is called: Group size Groupthink Role conflict Role expectations
-
How does the workplace influence an individuals behavior?
-
Which type of group model is for transitory groups with deadlines and the formation of the group does not follow the five-stage process? Five-stage model Punctuated equilibrium model Star model ...
-
True or false: If there is no linear correlation between systolic and diastolic blood pressure, then those two variables are not related in any way.
-
Why is it important to differentiate between an ordinary asset, a Section 1231 asset, and a capital asset?
-
When Irvene, an elderly woman, is denied the pension benefits of her deceased husband, she requests the assistance of Finn, a social worker at the senior resource center. Finn listens neutrally to...
-
Determine the volume of the parallelepiped of Fig. 3.25 when (a) P = 4i 3j + 2k, Q = 2i 5j + k, and S = 7i + j k, (b) P = 5i j + 6k, Q = 2i + 3j + k, and S = 3i 2j + 4k. P
-
Using the following returns, calculate the arithmetic average returns, the variances, and the standard deviations for X and Y. Returns Year X Y 1 13% 27% 2 26 36 3 7 11 4 -5 -29 11 16
-
Polska, Inc., is obligated to pay its creditors $10,300 during the year. a. What is the market value of the shareholders equity if assets have a market value of $11,600? b. What if assets equal...
-
Sunrise, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 23 years to maturity that is quoted at 96 percent of face value. The issue makes semiannual payments...
-
Consider a stochastic process such that the underlying security \(S\) follows the model: \[d S_{t}=\mu S_{t} d t+\sigma_{t} S_{t} d Z_{t}\] where \(Z\) is a standard Brownian motion. Suppose the...
-
Calculate the solution to the following SDE: \[d X_{t}=\alpha\left(m-X_{t} ight) d t+\sigma d B_{t}\] with \(X_{0}=x\). The process satisfying this equation is called the meanreverting...
-
If \(X_{t} \sim N\left(0, \sigma^{2} t ight)\) and \(Y_{t}=e^{X_{t}}\), calculate the pdf of \(Y_{t}\). Calculate \(\mathbf{E}\left[Y_{t} ight]\) and \(V\left(Y_{t} ight)\). Calculate the transition...
Study smarter with the SolutionInn App