Destin Corp. is comparing two different capital structures. Plan I would result in 15,000 shares of stock and $100,000 in debt. Plan II would result in 11,500 shares of stock and $170,000 in debt. The interest rate on the debt is 5 percent.

a.

Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $70,000. The all-equity plan would result in 20,000 shares of stock outstanding. What is the EPS for each of these plans? (Round your answers to 2 decimal places. (e.g., 32.16))

EPS Plan I $ 4.33 [correct] Plan II $ 5.35 [correct] All equity $ 3.50 [correct]

b.

In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan?

EBIT Plan I and all-equity $ n/r [incorrect] Plan II and all-equity $ n/r [incorrect]

c.

Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II?

EBIT $ n/r [incorrect]

d-1

Assuming that the corporate tax rate is 40 percent, what is the EPS of the firm? (Round your answers to 2 decimal places. (e.g., 32.16))

EPS Plan I $ 2.60 [correct] Plan II $ 3.21 [correct] All equity $ 2.10 [correct]

d-2

Assuming that the corporate tax rate is 40 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan?

EBIT Plan I and all-equity $ n/r [incorrect] Plan II and all-equity $ n/r [incorrect]

d-3

Assuming that the corporate tax rate is 40 percent, when will EPS be identical for Plans I and II?

EBIT $ n/r [incorrect]

Generally need help with problem B, C, D-2 and D-3