1) Lydic Enterprises is considering a change from its current capital structure. The company currently has an all-equity capital structure and is considering a capital structure with 30 percent debt. There are currently 4,000 shares outstanding at a price per share of $60. EBIT is expected to remain constant at $45,830. The interest rate on new debt is 12 percent and there are no taxes.

a.Rebecca owns $24,000 worth of stock in the company. If the firm has a 100 percent payout, what is her cash flow?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b.What would her cash flow be under the new capital structure assuming that she keeps all of her shares?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c.Suppose the company does convert to the new capital structure. Show how Rebecca can maintain her current cash flow.(Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

2)Silverton Co. is comparing two different capital structures. Plan I would result in 8,700 shares of stock and $323,000 in debt. Plan II would result in 12,000 shares of stock and $210,800 in debt. The interest rate on the debt is 10 percent.

a.Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $53,100. The all-equity plan would result in 18,200 shares of stock outstanding. Compute the EPS for each plan.(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	EPS
Plan I	$
Plan II	$
All-equity plan	$

b.In part (a), what is the break-even level of EBIT for Plan Ias compared to that for an all-equity plan?(Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) EBIT $ In part (a), what is the break-even level of EBIT for Plan IIas compared to that for an all-equity plan?(Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) EBIT $ c.Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II?(Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) EBIT $ d.Assume the corporate tax rate is 30 percent. Compute the EPS for each plan.(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	EPS
Plan I	$
Plan II	$
All-equity plan	$

What is the break-even level of EBIT for Plan Ias compared to that for an all-equity plan?(Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) EBIT $ What is the break-even level of EBIT for Plan IIas compared to that for an all-equity plan?(Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) EBIT $ At what level of EBIT will EPS be identical for Plans I and II?(Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) EBIT $