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Brrunno [24]
3 years ago
9

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 200,000 shares of stock outstanding. Under Plan II, there would be 150,000 shares of stock outstanding and $3 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.
a. If EBIT is $675,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b. If EBIT is $925,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
c. What is the break-even EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)
Business
1 answer:
emmasim [6.3K]3 years ago
3 0

Answer:

a. If EBIT is $675,000, what is the EPS for each plan?

  • Plan I: EPS = $675,000 / 200,000 = $3.38 per stock
  • Plan II: EPS = ($675,000 - $240,000) / 150,000 = $2.90 per stock

b. If EBIT is $925,000, what is the EPS for each plan?

  • Plan I: EPS = $925,000 / 200,000 = $4.63 per stock
  • Plan II: EPS = ($925,000 - $240,000) / 150,000 = $4.57 per stock

c. What is the break-even EBIT?

  • $960,000

Explanation:

Plan I:

  • 200,000 outstanding stocks

Plan II:

  • 150,000 outstanding stocks
  • $3,000,000 in outstanding debt (8% interest rate)

break even EBIT

x / 200,000 = (x - 240,000) / 150,000

x = 200,000(x - 240,000) / 150,000

x = 1.3333(x - 240,000)

x = 1.3333x - 320,000

320,000 = 1.3333x - 1

320,000 = 0.3333x

x = 320,000 / 0.3333 = $960,000

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Sales price $6.74 per unit
stiks02 [169]

Answer:

Margin of safety = 3190.922902 units rounded off to 3191 units

Explanation:

Margin of safety is the cushion or extra number of units that the business sells over the break even point in units. The break even point is the point where total revenue equals total cost and the business earns no profit or no loss. To calculate the margin of safety in units, we deduct the break even number of units from the budgeted number of units or sales.

Margin of safety = Budgeted units  -  Break even number of units

First we need to calculate the break even in units. The formula for break even in units is,

Break even in units = Fixed cost / (Selling price per unit - Variable cost per unit)

Break even in units = 9376 / (6.74 - 2.33)

Break even in units = 2126.077098 rounded off to 2126 units

Margin of safety = 5317  -  2126.077098

Margin of safety = 3190.922902 units rounded off to 3191 units

7 0
3 years ago
On July 1 of the current year, the assets and liabilities of John Wong, DVM, are as follows: Cash, $10,687; Accounts Receivable,
Agata [3.3K]

Answer:

The amount of stockholders' equity as of July 1 of the current year is $39,994

Explanation:

In John Wong, DVM, on July 1 of the current year:

Total asset = Cash + Accounts Receivable + Supplies + Land = $10,687 + $8,307 + $1,853 + $24,857 = $45,704

Liabilities = Accounts Payable = $5,710

Basing on accounting equation:

Total asset = Liabilities + Stockholders' Equity

Stockholders' Equity  = Total asset - Liabilities = $45,704 - $5,710 = $39,994

7 0
2 years ago
Building Supplies is considering a merger with Tools and More. Building's total operating costs of producing services are $4 mil
Natalka [10]

Answer:

We generally calculate total average cost by dividing total cost / total output units.

In this case, we are not given the output units, but instead we are given the output value, so we should find a percentage from total revenue.

total costs = $4,800,000

total revenue = $20,000,000 + $5,000,000 = $25,000,000

average total cost = ($4,800,000 / $25,000,000) x 100 = 19.2%

This means that for every $100 of revenue, the merged company will spend $19.20.

7 0
3 years ago
Alex's country was once communist, but now allows limited private ownership of companies, and lets market forces determine produ
ioda

Alex's country was once communist, but now allows limited private ownership of companies, and lets market forces determine production and pricing decision is the kind of 'Market Socialist' economy.

Market socialism, sometimes known as liberal socialism, is an economic system that strikes a balance between free enterprise and socialist planning. In this system, businesses are publicly owned, but output and consumption are determined by the market rather than by governmental planning.

In real life, Market socialism components have been present in a number of different economies. A version of market-based socialism, based on socially owned cooperatives, workers' self-management, and market allocation of capital, is usually regarded as having existed in the former Socialist Federal Republic of Yugoslavia.

To learn more about Communist

brainly.com/question/14018486

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8 0
1 year ago
_____ allows industries, organizations, and companies to approach business decisions from different perspectives. Arbitration Er
RoseWind [281]

Answer:

Workforce diversity

Explanation:

Workforce diversity refers to similarities and differences between employers and employees in terms of their race, religion, gender, perspectives and opinions.

Diversity is important for every industry, organization, and company since people have different perspective and views, they approach business problems differently, leading to different solutions. Diversity leads to increase profits, creativity, wide range of skills e.t.c.

4 0
3 years ago
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