Bellwood Corp. is comparing two different capital structures. Plan I would result in 24,000 shares of stock and $82,500 in debt. Plan II would result in 18,000 shares of stock and $247,500 in debt. The interest rate on the debt is 4 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $85,000. The all-equity plan would result in 27,000 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 25 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 25 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 25 percent, when will EPS be identical for Plans I and II? (Do not round intermediate calculations.) a. Plan I EPS Plan II EPS All equity EPS b. Plan I and all-equity break-even EBIT c. Plan II and all-equity break-even EBIT Plan I and Plan II break-even EBIT d-1. Plan I EPS Plan II EPS All equity EPS d-2. Plan I and all-equity break-even EBIT Plan II and all-equity break-even EBIT
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
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Bellwood Corp. is comparing two different capital structures. Plan I would result in 24,000 shares of stock and $82,500 in debt. Plan II would result in 18,000 shares of stock and $247,500 in debt. The interest rate on the debt is 4 percent. |
| a. |
Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $85,000. The all-equity plan would result in 27,000 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 25 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 25 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 25 percent, when will EPS be identical for Plans I and II? (Do not round intermediate calculations.) |
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