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
omeli [17]
3 years ago
6

Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levered plan (Plan II). Under Plan

I, the company would have 180,000 shares of stock outstanding. Under Plan II, there would be 130,000 shares of stock outstanding and $1.8 million in debt outstanding. The interest rate on the debt is 6 percent, and there are no taxes.
a. If EBIT is $225,000, what is the EPS for each plan?

b. If EBIT is $475,000, what is the EPS for each plan?

c. What is the break-even EBIT?
Business
1 answer:
kherson [118]3 years ago
6 0

Answer:

a. For plan I: $1.25; For plan II: $0.9

b. For plan I: $2.64; For plan II: $2.82

c. The break even EBIT is $388,800

Explanation:

a. Under Plan I: Net income = EBIT = $225,000 => EPS = Total net income/ shares outstanding = 225,000/180,000 = $1.25;

   Under Plan II: Net income = EBIT - Interest expenses = 225,000 - 1,800,000 x 6% = 117,000 => EPS = EPS = Total net income/ shares outstanding = 117,000/130,000 = $0.9;

b. Under Plan I: Net income = EBIT = $475,000 => EPS = Total net income/ shares outstanding = 475,000/180,000 = $2.64;

   Under Plan II: Net income = EBIT - Interest expenses = 475,000 - 1,800,000 x 6% = 367,000 => EPS = EPS = Total net income/ shares outstanding = 367,000/130,000 = $2.82;

c. Denote the break-even EBIT as x.

At break-even EBIT, EPS will be the same for two structures.

=> x/180,000 = (x - 1,800,000 x 6%)/ 130,000 <=> 13x/18 = x - 108,000 <=> 1,08,000 = 5x/18 <=> x = 108,000 x 18/5 = $388,800.

You might be interested in
In a situation where the investor exercises significant influence over the investee, which of the following entries is not actua
Aneli [31]

Answer:

2) Debit to Cash (for dividends received from the investee), and a Credit to Dividend Revenue.

Explanation:

Whenever the investment is made in shares of a company where the investor can exercise significant influence, then equity method is used.

Under equity method, it is that all incomes of investee company are incomes of investor company.

And any amount of income received as a distribution is deducted from the carrying value of investment, as reduces the cost of investment.

Thus, any dividend received is debited and investment account is credited.

Dividend is never treated as dividend revenue.

Thus, option 2 is not correct.

7 0
3 years ago
Which of the following is most correct:Question 8 options:A firm with financial leverage has a larger equity multiplier than an
elena-14-01-66 [18.8K]

Answer:

A firm with financial leverage has a larger equity multiplier than an otherwise identical firm with no debt in its capital structure.

Explanation:

The equity multiplier basically tells us what portion of the company's assets were financed through equity, i.e. what portion was financed by the company's owners.

the formula to determine the equity multiplier = total assets / total equity

the higher the equity multiplier, the higher the return on equity (ROE), but a high equity multiplier (financial leverage) also increases the company's risk since eventually it might not be able to pay off its creditors if something goes wrong.

8 0
3 years ago
By how much did annualized consumption decline in november of 2008 when gdp was $14 trillion?
irga5000 [103]
<span>Annualized consumption dropped immensely in November 2008. The 5 years prior to 2008 were some of our strongest yet, also, a GDP of $14 trillion is nothing to balk at. I am thoroughly surprised that the decline we experienced then came so soon after a long streak of winning.</span>
5 0
3 years ago
Which of the following is not an example of a natural experiment an economist might use to evaluate a theory? a. Transit ridersh
Verdich [7]

Answer:

Example of not a natural experiment an economist might use to evaluate a theory is:

C. Here the Students in a microeconomics principles course are advised to play a game with their classmates to determine and evaluate what all decisions they make under certain adjusted circumstances.

Explanation:

Natural experiment : A natural experiment is referred to an observational and also an empirical study in which we get to study about the experimental and controllable varieties of variables. which can not het manipulated anywhere by the researchers.

Instead these experiments are allowed to affect the environment and the nature or the different factors which are not under control of our researchers. In contrast to the experimental values and all the natural experiments are even not controlled by the researchers but instead they also admire and obseve those experiments for their own studies.

So, the right option is:

C. Here the Students in a microeconomics principles course are advised to play a game with their classmates to determine and evaluate what all decisions they make under certain adjusted circumstances.

7 0
3 years ago
Beginning inventory $ 34,000 Inventory purchases (on account) 164,000 Freight charges on purchases (paid in cash) 19,000 Invento
sukhopar [10]

Answer:

<u>Journal entries - Perpetual inventory system</u>

<em>Inventory purchases (on account) 164,000</em>

Inventory $ 164000(debit)

Trade Payables $ 164000 (credit)

<em>Freight charges on purchases (paid in cash) 19,000</em>

Freight Charges $ 19000 (debit)

Bank $19000 (credit)

*****Freight Charges forms part of cost of Inventory (IAS 2) therefore write off freight cost to Inventory Account****

Inventory $19000 (debit)

Freight Charges $ 19000 (credit)

<em>Inventory returned to suppliers (for credit) 21,000</em>

Trade Payable $ 21000 (debit)

Inventory $21000(credit)

<em>Sales (on account) 259,000</em>,

Trade Receivables $ 259000 (debit)

Revenue $259000(credit)

<em>Cost of inventory sold 157,000</em>

Cost of Sales $157000 (debit)

Inventory $157000 (credit)

<u>Journal entries - Periodic inventory system</u>

<em>Inventory purchases (on account) 164,000</em>

Inventory $ 164000(debit)

Trade Payables $ 164000 (credit)

<em>Freight charges on purchases (paid in cash) 19,000</em>

Freight Charges $ 19000 (debit)

Bank $19000 (credit)

*****Freight Charges forms part of cost of Inventory (IAS 2) therefore write off freight cost to Inventory Account****

Inventory $19000 (debit)

Freight Charges $ 19000 (credit)

<em>Inventory returned to suppliers (for credit) 21,000</em>

Trade Payable $ 21000 (debit)

Inventory $21000(credit)

<em>Sales (on account) 259,000</em>,

Trade Receivables $ 259000 (debit)

Revenue $259000(credit)

<em>Cost of inventory sold 157,000</em>

Cost of Sales $157000 (debit)

Inventory $157000 (credit)

Explanation:

<em>Inventory purchases (on account) 164,000</em>

Recognise an Asset - Inventory and a liability - Account payable

<em>Freight charges on purchases (paid in cash) 19,000</em>

Recognise an expense - Freight Charges and de-recognise asset - Bank

*****Freight Charges forms part of cost of Inventory (IAS 2) therefore write off freight cost to Inventory Account****

Derecognise expense- Freight and recognise an asset - Inventory

<em>Inventory returned to suppliers (for credit) 21,000</em>

De-recognise Asset - Inventory and De-recognise Liability - Account Payable

<em>Sales (on account) 259,000</em>,

Recognise Asset - Trade Receivable and Recognise Revenue

<em>Cost of inventory sold 157,000</em>

Recognise expense - Cost of Sale in Profit and Loss and De-recognise Asset- Inventory

6 0
3 years ago
Other questions:
  • The preemptive right gives current stockholders the right to purchase, on a pro rata basis, any new shares issued by the firm. T
    7·1 answer
  • Culver Corporation’s adjusted trial balance contained the following accounts at December 31, 2020: Retained Earnings $122,300, C
    5·1 answer
  • Lew Co. sold 200,000 corrugated boxes for $2 each. Lew's cost was $1 per unit. The sales agreement gave the customer the right t
    5·1 answer
  • The marginal rate of transformation of x for y represents:__________
    13·1 answer
  • The accounts payable account is listed in the chart of accounts as an asset.<br> True<br> False
    10·1 answer
  • If a union succeeds in rasing the wages of its members above the equilibrium, what is a likley outcome?a. unemployment.b. deflat
    15·1 answer
  • Allo Foundation, a tax-exempt organization, invested $200,000 in cost-saving equipment. The equipment has a five-year useful lif
    10·1 answer
  • A client profile is not complete without a family income statement. A typical one would include:_________.
    6·1 answer
  • The sequence of suppliers that contribute to creating and delivering a product, from raw materials to production to final buyers
    9·1 answer
  • cost reductions stemming from strategic fit along the value chains of related businesses can result in multiple choice economies
    6·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!