Destin Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of stock and $90,000 in debt. Plan II would result in 7,600 shares of stock and $198,000 in debt. The interest rate on the debt is 10 percent.
a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $48,000. The all-equity plan would result in 12,000 shares of stock outstanding. What is the EPS for each of these plans? (Round your answers to 2 decimal places. (e.g., 32.16)
a. Plan I
Plan II
All equity
b. In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan?
Plan I and all-equity
Plan II and all-equity
c. Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II?
d-1. Assuming that the corporate tax rate is 40 percent, what is the EPS of the firm? (Round your answers to 2 decimal places. (e.g., 32.16))
Plan I
Plan II
All equity
d-2. Assuming that the corporate tax rate is 40 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan?
Plan I and all-equity
Plan II and all-equity
d-3. Assuming that the corporate tax rate is 40 percent, when will EPS be identical for Plans I and II?
EBIT