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Triss [41]
3 years ago
5

Kyle Corporation 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 715,000 shares of stock outstanding. Under Plan II, there would be 465,000 shares of stock outstanding and $6.75 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes.
a. Assume that EBIT is $1.6 million. Compute the EPS for both Plan I and Plan II.
b. Assume that EBIT is $3.1 million. Compute the EPS for both Plan I and Plan II.
c. What is the break-even EBIT?
Business
1 answer:
kozerog [31]3 years ago
7 0

Answer:

EPS = (Net income - Dividends) / Average number of share

a. <u>Plan 1</u>

Number of share = 715,000

EPS = $1,600,000/715,000

EPS = 2.23 (EBIT = Net Income as Interest and tax are 0)

<u>Plan 2</u>

Net income = EBIT = $1.6 million = $1,600,000

Interest = 0.07*$6,750,000 = $472,500

EBT = $1,600,000 - $472,500 = $1,127,500

Tax = 0

Net Income = 1,127,500 (1)

Number of share = 465,000

EPS = $1,127,500/465000

EPS = 2.42 (Net Income from 1)

b. <u>Plan 1</u>

EPS = $3,100,000/715000 = $4.33

<u>Plan 2</u>

When EBIT = $3,100,000

Interest = 0.07*$6,750,000 = $472,500

Net Income = $3,100,000 - $472,500 = $2,627,500

EPS = $2,627,500/465,000

EPS = 5.65 (From 2)

c. Plan 1 EBIT = Plan 2 EBIT to calculate break-even EBIT

EBIT/715,000 = (EBIT - 0.07*$6,750,000)/465,000

EBIT = $1,351,350

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Which of the following pair of journal entries correctly records the current month's activity where the company had $21,030 in t
Lelechka [254]

Answer:

----------------------    -   -------------------------------

Factory Payroll         21030

             Cash                        21030

----------------------    -    -------------------------------

Goods in process     16200

Factory Overhead     4830

       Factory Payroll               21030

----------------------    -    -------------------------------

Explanation: The payment of the total labor factory costs must be recorded, we debit the "Factory payroll" cost account and credit the "cash" account as they were paid in cash.

Then we must allocate these costs to the production process, therefore we debit the "goods in process" account for the amount of <u>direct labor</u> consumed, and "factory overhead" for the amount of <u>indirect labor </u>consumed, and finally credit the account " Factory payroll " for the total.

7 0
4 years ago
A recession within a nation will _________ imports directly, but the impact on the national economy is negative.
katen-ka-za [31]

A recession within a nation will <u>reduce</u> imports directly, but the impact on the national economy is negative.

Monetary policy. monetary policy consists of the steps the central bank of a nation can take in order to regulate the nation's money supply. For example, a central bank might reduce interest rates during a recession in order to make loans more readily available to other banks and thus stimulate economic recovery.

During a recession, the economic struggles, people lose work, companies make fewer sales, and the country's overall economic output decline. The point at which the financial system officially falls right into a recession relies upon an expansion of things.

Monetary policy can offset a downturn due to the fact that decreased interest rates reduce consumers' cost of borrowing to shop for large-ticket objects such as cars or homes. For firms, the economic policy also can reduce the value of an investment.

Learn more about Monetary policy here brainly.com/question/13926715

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4 0
2 years ago
Broze Company makes four products in a single facility. These products have the following unit product costs: Products A B C D D
Tems11 [23]

Omg that's lot sorry I don't know

4 0
3 years ago
Super Saver Groceries purchased store equipment for $44,500. Super Saver estimates that at the end of its 10-year service life,
lions [1.4K]

Answer:

1) Using straight line method , depreciation for first year is $4,000

2) Using double declining balance , depreciation for first year is $8,900

3) Using activity based method,  depreciation for first year is $5,600

Explanation:

Given:

Cost = $44,500

Useful life = 10 years

Salvage value = $4,500

Useful life in hours = 10,000 hours

Super Saver used the equipment for 1,400 hours the first year.

1) Straight line method

Depreciation for first year = (cost - salvage value) ÷ useful life

= $(44,500 - 4,500) ÷ 10

= $4,000 per year

2) Double declining balance

Depreciation rate = (100 ÷ useful life) × 2

= (100 ÷ 10) × 2

= 20%

Depreciation for first year = $44,500 × 20%

= $8,900

3) Activity based

Rate = cost - salvage value ÷ useful life in hours

= ($44,500 - $4,500) ÷ 10,000

= 4 per hour

Depreciation for first year = 1,400 × 4

= $5,600

4 0
3 years ago
D
vichka [17]

Answer:

income - expenses

Explanation:

net income is an entity's income minus all the expenses, taxes etc and net worth is the total wealth own by individual minus expenses.

3 0
2 years ago
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