Question: Problem 13-6 Break-Even EBIT and Leverage [LO 1, 2] Dickson Corporation is comparing two different capltal structures. Plan I would result in 12,700 shares of
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Problem 13-6 Break-Even EBIT and Leverage [LO 1, 2] Dickson Corporation is comparing two different capltal structures. Plan I would result in 12,700 shares of stock and $100,050 in debt. Plan il 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 plan? Note: Do not round Intermedlate calculatlons and round your answers to 2 decimal places, e.g., 32.16. b. What is the break-even level of EBIT for Plan I as compared to that for an all-equity plan? What about for Plan II as compared to the all-equity plan? Note: Do not round Intermedlate calculations and round your answers to the nearest whole number, e.g., 32. c. What is the break-even level of EBIT for Plan I as compared to Plan II? Note: Do not round Intermedlate calculatlons and found your answer to the nearest whole number, e.g., 32 . d-1. Assuming the corporate tax rate is 21 percent, what is the EPS for each plan? Note: Do not round Intermedlate calculations and round your answers to 2 decimal places, e.g., 32.16. d-2. Assuming the corporate tax rate is 21 percent, what is the break-even level of EBIT for Plan I as compared to that for an all-equity plan? What about for Plan II as compared to the all-equity plan? Note: Do not round Intermedlate calculatlons and round your answers to the nearest whole number, e.g., 32 . d-3. Assuming the corporate tax rate is 21 percent, what is the break-even level of EBIT for Plan I as compared to Plan II? Note: Do not round Intermedlate calculatlons and round your answer to the nearest whole number, e.g., 32
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