Honeycutt Co. is comparing two different capital structures. Plan I would result in 38,000 shares of stock and $106,500 in debt. Plan II would result in 32,000 shares of stock and $319,500 in debt. The interest rate on the debt is 6 percent. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $155,000. The all-equity plan would result in 41,000 shares of stock outstanding. (d-1. Assuming that the corporate tax rate is 24 percent, what is the EPS of the firm? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)d-2. Assuming that the corporate tax rate is 24 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.)d-3. Assuming that the corporate tax rate is 24 percent, when will EPS be identical for Plans I and II? (Do not round intermediate calculations.)
Honeycutt Co. is comparing two different capital structures. Plan I would result in 38,000 shares of stock and $106,500 in debt. Plan II would result in 32,000 shares of stock and $319,500 in debt. The interest rate on the debt is 6 percent. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $155,000. The all-equity plan would result in 41,000 shares of stock outstanding. (d-1. Assuming that the corporate tax rate is 24 percent, what is the EPS of the firm? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)d-2. Assuming that the corporate tax rate is 24 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.)d-3. Assuming that the corporate tax rate is 24 percent, when will EPS be identical for Plans I and II? (Do not round intermediate calculations.)
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