Question: Dickson Corporation is comparing two different capital structures. Plan I would result in 25,000 shares of stock and $84,000 in debt. Plan II would result

Dickson Corporation is comparing two different capital structures. Plan I would result in 25,000 shares of stock and $84,000 in debt. Plan II would result in 19,000 shares of stock and $252,000 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 $90,000. The all-equity plan would result in 28,000 shares of stock outstanding. What is the EPS for each of these plans? (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? (Do not round intermediate calculations.) c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) d-1. Assuming that the corporate tax rate is 21 percent, what is the EPS of the firm? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 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? (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? (Do not round intermediate calculations.)
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To solve the question we need to calculate the Earnings Per Share EPS for each plan under different conditions and determine the breakeven levels as m... View full answer
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