Earnings Per Share Assignment | Homework For You
May 28th, 2020
| Honeycutt Co. is comparing two different capital structures. Plan I would result in 23,000 shares of stock and $81,000 in debt. Plan II would result in 17,000 shares of stock and $243,000 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 $80,000. The all-equity plan would result in 26,000 shares of stock outstanding. What is the EPS for each of these plans? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| b. | In part (a), 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.) |
| c. | Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.) |
| 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.) Get Finance homework help today |
