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marissa [1.9K]
3 years ago
11

oneycutt Co. is comparing two different capital structures. Plan I would result in 39,000 shares of stock and $108,000 in debt.

Plan II would result in 33,000 shares of stock and $324,000 in debt. The interest rate on the debt is 7 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $160,000. The all-equity plan would result in 42,000 shares of stock outstanding. What is the EPS for each of these plans
Business
1 answer:
Mila [183]3 years ago
8 0

Answer:

All equity plan:

EPS = $160,000 / 42,000 = $3.81

Plan I:

EPS = [$160,000 - ($108,000 x 7%)] / 39,000 = $152,440 / 39,000 = $3.91

Plan II:

EPS = [$160,000 - ($324,000 x 7%)] / 33,000 = $137,320 / 33,000 = $4.16

Plan II is better since the resulting EPS is higher than the other alternatives.

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2 years ago
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Answer:

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To determine IRR using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

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