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

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.)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

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

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!