Which of the following is a characteristic of economic services:

Square Block Company is comparing two different capital structures: An all-equity plan (Plan I) and a levered plan (Plan II). Un

Anarel [89]

Answer:

a. If EBIT is $1,000,000 Plan 1 will give higher EPS

b. If EBIT is $1,500,000 Plan 2 will give higher EPS

c. The break-even EBIT would be $ 1,400,000

Explanation:

a) In Plan 1

According to given data EBIT = $1,000,000

Since there is no debt, so there is no interest. Also there are no taxes

So , earnings avaliable to shareholders = $ 1,000,000

shares of stock outstanding = 350,000

EPS = 1,000,000 / 350,000 = 2.857

Plan 2

EBIT = $1,000,000

Debt = 5000000

Interest = 10% * 5000000 = $ 500000

So , EBIT -interest = $ 500000

Earnings avaliable to shareholders = $ 500000

shares of stock outstanding = 225000

EPS = 500000/ 225000= 2.222

So Plan 1 will give higher EPS

b) Plan 1

EBIT = $1,500,000

Since there is no debt, so there is no interest. Also there are no taxes

So , earnings avaliable to shareholders = $ 1,500,000

shares of stock outstanding = 350,000

EPS = 1,500,000 / 350,000 = 4.286

Plan 2

EBIT = $1,500,000

Debt = 5000000

Interest = 10% * 5000000 = $ 500000

So , EBIT -interest = $ 1000000

Earnings avaliable to shareholders = $ 1000000

shares of stock outstanding = 225000

EPS = 1000000/ 225000= 4.444

So Plan 2 will give higher EPS

c)

Let the breakeven EBIT be 'x'

So,

In breakeven EBIT both EPS for plan 1 and 2 will be same

So,

x / 350000 = ( x - 500000) / 225000

Solving for x , x= 1400000

Breakeven EBIT = $ 1,400,000

3 0

3 years ago

On September 1, 2021, Middleton Corp. lends cash and accepts a $10,000 note receivable that offers 18% interest and is due in si

vaieri [72.5K]

Answer:

Interest revenue yr2022= $300

Explanation:

From Sep 1 to end of year 2021, Middleton Corp. will have accrued interest for 4 months; meaning, the following year(2022), the interest revenue to be recorded will be for the remaining 2 months.

Therefore,

Interest revenue yr2022= $10000 * 18% * 2/12

Interest revenue yr2022= $300

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