Question: Dickson Corporation is comparing two different capital structures. Plan I would result in 12,700 shares of stock and $100,050 in debt. Plan II would result
Dickson Corporation is comparing two different capital structures. Plan I would result in 12,700 shares of stock and $100,050 in debt. Plan II would result in 9,800 shares of stock and $226,200 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 $70,000. The all-equity plan would result in 15,000 shares of stock outstanding. What is the EPS for each of these plans? (Do not round Intermediate caleulations and round your answers to 2 declmal places, e.g., 3210.) b. In part (a), what are the break-ven levels of EBrT for each plan as compared to that for an all-equity plan? (Do not round Intermedlate calculotlons.) c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round Intermedlate calculetions.) d-1. Assuming that the corporate tax rate is 21 percent, what is the EPS of the firm? (Do not round Intermedlate calculations and round your answers to 2 decimal places, e.g., 32.18.) d-2 Assuming that the corporate tax rate is 21 percent, whot are the break-even levels of EBrT for each plan as compared to that for an all-equity plan? (Do not round Intermedlote calculetions.) d-3. Assuming that the corporate tax rate is 21 percent, when will EPS be identical for Plans I and II? (Do not round Intermedlate colculations.)
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
