Ask question

Ask question

All categories

BaLLatris [955]

3 years ago

15

Rise Against Corporation is comparing two different capital structures: an all equity plan (Plan A) and a levered plan (Plan B).

Under Plan A, the company would have 210,000 shares of stock outstanding. Under Plan B, there would be 150,000 shares of stock outstanding and $2.28 million in debt outstanding. The interest rate on the debt is 8%, and there are no taxes.a. If EBIT is S500,OOO, which plan will result in the higher EPS? b. If EBIT is $750,000, which plan will result in the higher EPS? c. What is the break-even EBIT?

1 answer:

Thepotemich [5.8K]3 years ago

3 0

Answer:

a. Plan A

b. Plan B

c. $638,400

Explanation:

The formula to compute the earning per share is shown below:

Earning per share = (Net income - interest) ÷ (Number of shares)

a. For Plan A

EPS = ($500,000) ÷ (210,000 shares) = $2.38

For Plan B

EPS = ($500,000 - $182,400) ÷ (150,000 shares) = $2.12

The interest is computed below:

= $2.28 million × 8%

= $182,400)

Plan A has higher EPS

b. For Plan A

EPS = ($750,000) ÷ (210,000 shares) = $3.57

For Plan B

EPS = ($750,000 - $182,400) ÷ (150,000 shares) = $3.78

The interest is computed below:

= $2.28 million × 8%

= $182,400)

Plan B has higher EPS

c. Break-even EBIT

(EBIT) ÷ (Number of shares) = (EBIT - Interest) ÷ Number of shares

(EBIT) ÷ (210,000) = (EBIT - $182,400) ÷$150,000

After solving this,

The EBIT would be $638,400

You might be interested in

[55 points] (public health) in 1972 a one-in-six random survey of the electoral roll | largely concerned with studying heart dis

Flauer [41]

It needs to be an equivalent number to an equator and then times it and multiply the answer

5 0

3 years ago

Molly is a 30% partner in the MAP Partnership. During the current tax year, the partnership reported ordinary income of $200,000

loris [4]

Answer:

The answer is: C) $62,000

Explanation:

The partnership had a total ordinary income of $200,000. It made guaranteed payments to its three partners (Molly, Amber and Pat) of $20,000 each ($60,000 in total).

So the partnership adjusted income is reduced to $140,000, out of that amount, 30% belongs to Molly. Molly's share of the partnership adjusted income is $42,000.

Molly's total earnings from the partnership are $62,000 ($20,000 + $42,000)

8 0

3 years ago

Most economists A. apply the assumption that people rarely behave as if they act rationally although they do aim to maximize uti

aleksklad [387]

Answer:

The correct answer is letter "C": apply the assumption that people behave as if they act rationally with an aim to maximize utility.

Explanation:

The theory of rational expectations is mainly used in macroeconomics, with the idea that decisions of individuals will affect the future course of the economy. According to this theory, people's behaviors are based on <em>rationality, all the information that they have available, </em>and <em>past experiences. </em>

Some of the rational expectations theory's premises are that <em>people hold expectations that will be met, variables values (price, output, and employment) are taken into account, </em>and <em>individuals are always trying to maximize their profits.</em>

3 0

3 years ago

Your daughter will start college one year from today, at which time the first tuition payment of \$58,000$58,000 must be made. A

Ierofanga [76]

Answer: I'll need $2,14,309.02 in my savings account in order to make tuition payments over the next four years.

We follow these steps in order to arrive at the answer:

In this question, we need to take into account that we need to pay 35% as taxes on interest earned.

So even though the interest rate on the deposit is 5%, only $1 - 35% = 65%$ will be available for use.

Hence, effectively the deposit will only earn $0.05*0.65 = 0.0325\\$ or 3.25% interest after taxes.

We'll compute the the Present Value of the annuity of 58,000 for four years at 3.25% interest in order to determine the amount that is needed today.

The Present Value of an Annuity formula is

$\mathbf{PV_{Annuity}= PMT\left ( \frac{1 -(1+r)^{-n}}{r} \right )}$

Substituting the values in the equation above we get,

$PV_{Annuity}= 58,000\left (\frac{1 -(1.0325)^{-4}}{0.0325} \right )$

$PV_{Annuity}= 58,000\left (\frac{ 0.12008695 }{0.0325} \right )$

$\mathbf{PV_{Annuity}= 58,000 * 3.69 = 2,14,309.02}$

3 0

3 years ago

Select all that apply.

Dominik [7]

Answer:

Supply equals demand

Explanation:

Equilibrium is a situation which occurs when there is a balance between quantity demanded and quantity supplied.

5 0

3 years ago