Kuchar Corporation is comparing two different capital structures, an all-equity plan (PlanI) and a levered plan (Plan II). Under Plan I, the company would have 175,000 shares ofstock outstanding. Under Plan II, there would be 125,000 shares of stock outstandingand $2.5 million in debt outstanding. The interest rate on the debt is 8 percent and thereare no taxes.a. If EBIT is $650,000, what is the EPS for each plan? (Do not round intermediatecalculations and round your answers to 2 decimal places, e.g., 32.16.)b. If EBIT is $900,000, what is the EPS for each plan? (Do not round intermediatecalculations and round your answers to 2 decimal places, e.g., 32.16.)c. What is the break-even EBIT? (Do not round intermediate calculations and enteryour answer in dollars, not millions of dollars, rounded to the nearest wholenumber, e.g., 1,234,567.)a. Plan IPlan IIb. Plan IPlan IIc. Break-even EBIT

Plan- I EBIT = $ 650,000 Less: Interest on Debt. =. Nill (…

Answered: and $2.5 million in debt outstanding.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Trapper 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 160,000 shares of stock outstanding. Under Plan II, there would be 110,000 shares of stock outstanding and $1.4 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes. a. If EBIT is $400,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)b. If EBIT is $650,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)c. What is the break-even EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.
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Round Hammer 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 170,000 shares of stock outstanding. Under Plan II, there would be 120,000 shares of stock outstanding and $2.4 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes. a. If EBIT is $450,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. If EBIT is $700,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) c. What is the break-even EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) a. Plan I EPS Plan II EPS b. Plan I EPS Plan II EPS c. Break-even EBIT
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