Question: Dickson Corporation is comparing two different capital structures. Plan I would result in 35,000 shares of stock and $100,500 in debt. Plan II would result
Dickson Corporation is comparing two different capital structures. Plan I would result in 35,000 shares of stock and $100,500 in debt. Plan II would result in 29,000 shares of stock and $301,500 in debt. The interest rate on the debt is 7 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $140,000. The all-equity plan would result in 38,000 shares of stock outstanding. What is the EPS for each of these plans? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g. 32.16. b. In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? Note: Do not round intermediate calculation]. c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? Note: Do not round intermediate calculations. d-1. Assuming that the corporate tax rate is 21 percent, what is the EPS of the firm? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.9., 32.16. d.2. Assuming that the corporate tax rate is 21 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? Note: Do not round intermediate calculations. d-3. Assuming that the corporate tax rate is 21 percent, when will EPS be identical for Plans I and II? Note: Do not round intermediate calculations
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