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
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

You might be interested in
The coupon rate is the rate of interest that the issuer of the bond must pay. (II) The coupon rate is usually fixed for the dura
lyudmila [28]

Answer:

TRUE

Explanation:

The coupon rate for a bond is fixed and is paid by the issuer of the bond to the bondholder. The cash outlay/inflow to the issuer/bondholder is always the same reardless of the market rate.

The effect of the market rate is on the cost to acquire the bond in the secondary market. It do not change the coupon obligation.

3 0
3 years ago
One of the purposes of the US judicial system is to _____.
Norma-Jean [14]

the answer is B, resolve conflicts peacefully

5 0
2 years ago
Read 2 more answers
Does retail storage with customer pick up pose any risk for distribution network?
sukhopar [10]

Inventory cost is higher than all other options. If there are many small players at the customer stage, each requiring small amount of the product at a time.

4 0
3 years ago
The indirect financial and nonfinancial payments employees receive for continuing their employment with a company are called ___
gayaneshka [121]
Benefits is the correct answer
3 0
3 years ago
How to wear black formal shoes?
Sladkaya [172]

Answer:

Go in for a traditional shirt-jeans outfit and pair it with black formal shoes. A plaid shirt, pair of blue jeans and black dress shoes is how you'll want to rock it! Get that macho look right by wearing a leather jacket over a formal shirt and jeans. Your shoes will complement the jacket perfectly.

Explanation:

3 0
3 years ago
Read 2 more answers
Other questions:
  • The biggest factor in determining the price of a mortgage is:
    5·1 answer
  • to startup a small part time business assume your only cost are paying $100 for equipment and paying each employee you hire $ 20
    11·1 answer
  • Cindy Medavoy will invest $7,990 a year for 19 years in a fund that will earn 10% annual interest. Click here to view factor tab
    14·1 answer
  • "A firm has $400,000 in credit sales and $100,000 in accounts receivable. Compute accounts receivable turnover and average numbe
    15·1 answer
  • Some americans argue that _____ should be used to keep domestic wages high and unemployment low.
    5·1 answer
  • PLEASE HELP QUICK!!!!!
    9·2 answers
  • What type of stores rely on their large size and very deep selection to try to dominate the market?
    8·1 answer
  • A list of the knowledge, skills, and other qualities a person must possess in
    14·1 answer
  • What would sell more (both stores are just now opening.): a "in-trend" jewelry store or a Simplistic lip gloss shop?
    12·1 answer
  • Purely domestic firms will be at a disadvantage to mnes in the event of market disequilibria because
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!