1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Firdavs [7]
3 years ago
5

Franklin corporation is comparing two different capital structures, an all equity plan (plan 1) and a levered plan (plan 2). Und

er plan 1, the company would have 315,000 shares of stock outstanding. Under plan 2, there would be 225,000 shares outstanding and $4.14 million in debt outstanding. The interest rate on the debt is 10 percent and there are no taxes.
A)If EBIT is $750,000, which plan will result in the highest EPS?

B)What is the break even EBIT?
Business
1 answer:
strojnjashka [21]3 years ago
3 0

Answer:

All equity firm will get 2.38 EPS while leverage firm 1.49

Break Even EBIT 1,449,000

Explanation:

EBIT 750,000

interest rate 10%

(there are no taxes thus, we do not make the distinction between after and pre-tax cost of debt)

4,140,000 x 0.1 = 414,000  interest expense

net income 336,000

outstanding shares 225,000

EPS = \frac{income-}{outstanding \: common \: stock}

EPS 1.49333

All equty: 750,000 / 315,000 = 2,38

Break Even EBIT:

The point at which is indiferent to be equity or levered firm:

Levered Firm EPS = Equity Firm EPS

(EBIT - 414,000)/225,000 = EBIT / 315,000\\EBIT/225,000 -414,000/225,000 =  EBIT/315,000\\EBIT/225,000 - EBIT/315,000  =  414,000/225,000\\EBIT = 1.84 / (1/225,000 - 1/315,000)\\

Break Even EBIT 1,449,000

You might be interested in
An acre lot was purchased for $100,000. A $500,000 office building was erected. The building is placed in service in May. Find t
kolezko [41]

Answer: $8025

Explanation:

From the information given, first and foremost, we need to realise that only the building in this case will be depreciated due to the fact that land is considered to be a non depreciable asset.

Therefore, the MACRS depreciation charge for year 1 will then be:

= MACRS rate × Value of Building

= 1.605% × $500,000

= 0.01605 × $500,000

= $8025

5 0
3 years ago
Owen expects to receive $ 25,000 at the end of next year from a trust fund. If a bank loans money at an interest rate of 7.1 %​,
Rzqust [24]

Answer: He could borrow from one of the following options:

(a) $18,605

(b) $11,428

(d) $20,000

Explanation:

If Owen borrows $18,605

Bank interest rate = 7.1% of $18,605

=7.1/100 ×$18,605

=$1, 320.955

Owen's debt at his bank=

$18,605+$1,320.9555 =

$19,925.955

When Owen receives the trust fund of $25,000, he can pay his debt and still has $5,074.045 with him.

If Owen borrows $11,428

Bank interest rate = 7.1% × $11,428

=$811. 388

Owen's debt at his bank=

$811.388+$11,428 =

$12,239.388

When Owen receives the trust fund of $25,000, he can pay his debt and still has $12,760.612 left with him.

If Owen borrows $20,000

Bank interest rate =7.1% of $20,000

=7.1/100 ×$20,000

=$1, 420

Owen's debt at his bank=

$20,000 + $1,420 = $21,420

When Owen receives the trust fund of $25,000, he can pay his debt at his bank and still has $3,580 left with him.

4 0
3 years ago
Place the steps for finding the EOQ in a quantity discount model with variable H in the correct order.
ira [324]

The steps for finding the EOQ in a quantity discount model with variable H are:

  1. The optimal point is the quantity that yields the lowest cost
  2. Start with the lowest price
  3. If the minimum point is feasible
  4. Otherwise, compare total costs

What is the Economic Order Quantity(EOQ)?

The Economic Order Quantity is the ideal quantity of units a company should purchase to meet demand while minimizing inventory, costs such as holding costs, shortage costs, and order costs.

The economic order quantity formula assumes that demand, ordering and holding costs all remain constant.

Learn more about Economic Order Quantity here:

brainly.com/question/7224625

#SPJ1

4 0
10 months ago
a. A challenging job at an organization that raises the bar in data security b. An entry-level position in the marketing area wi
Svetllana [295]

Answer:

d. An accounting position in which 10 years' experience and a license as a CPA will allow me to assist your company with payroll, employee benefits,

Explanation:

THE QUESTION IS THAT

Which of the following is the best career objective for a résumé?

Career objective can be regarded as a personal statement that gives definition of the specifics that one wish to attain in his/her profession.

A resume objective can be regarded as optional part that is been written in a resume which states or specify the career goals as well as outlines ones best skills. It should be noted that one of the best career objective for a résumé is An accounting position in which 10 years' experience and a license as a CPA will allow me to assist your company with payroll, employee benefits,

5 0
2 years ago
True or false? cms, not the apc advisory panel or medpac, makes the final ruling for updates and changes to opps.
Elenna [48]
True I think I hope I help
8 0
3 years ago
Other questions:
  • For a fitness center purchasing a $3,000 photocopier expected to produce 30,000 copies with no salvage value at the end of the p
    13·1 answer
  • _____ lets programmers create Web pages that will update asynchronously while the rest of the Web page continues to be displayed
    11·1 answer
  • The united states exports corn and aircraft to the rest of the world and it imports oil and clothing from the rest of the world.
    6·2 answers
  • _____ refers to searching and capturing new ideas that lead to business opportunities. Opportunity charging Entrepreneurial aler
    11·1 answer
  • Coates Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. T
    11·1 answer
  • The following selected transaction were completed by gourmet company during January of the current year:
    10·1 answer
  • The estimated factory overhead cost for a Co. is $1750000 for the year. Direct labor hours are estimated to be 500000. Determine
    10·1 answer
  • The long run aggregate supply curve shifts to the right given that
    13·1 answer
  • The Federal Reserve ________ pay interest on reserves held on deposit. The European System of Central Banks ________ pay interes
    11·1 answer
  • Which marketing activity is most directly served by the promotion element of the marketing mix?
    8·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!