Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 13, Problem 4QP
Break-Even EBIT. Kyle 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 300,000 shares of stock outstanding. Under Plan II, there would be 210,000 shares of stock outstanding and $2,367,000 in debt outstanding. The interest rate on the debt is 10 percent, and there are no taxes.
a. If EBIT is $600,000, which plan will result in the higher EPS?
b. If EBIT is $900,000, which plan will result in the higher EPS?
c. What is the break-even EBIT?
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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 150,000 shares of stock outstanding. Under Plan II, there would be 100,000 shares of stock outstanding and $1.24 million in debt outstanding. The interest rate on the debt is 5 percent and there are no taxes.
a.
Use M&M Proposition I to find the price per share. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.
What is the value of the firm under each of the two proposed plans? (Do not round intermediate calculations and round your answers to the nearest whole dollar amount, e.g., 32.)
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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 200,000 shares of stock outstanding. Under Plan II, there would be 150,000 shares of stock outstanding and $3 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.
a.
If EBIT is $675,000, 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 $925,000, 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.)
Byrd Corporation is comparing two different capital structures, an all-equity plan (Plan I) anda levered plan (Plan II). Under Plan I, the company would have 365,000 shares of stockoutstanding. Under Plan II, there would be 245,000 shares of stock outstanding and RM4.56million in debt outstanding. The interest rate on the debt is 10 percent and there are no taxes.(i) Use MM Proposition I to find the price per share.
Chapter 13 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 13.1 - What is the relationship between the WACC and the...Ch. 13.1 - Prob. 13.1BCQCh. 13.2 - Prob. 13.2ACQCh. 13.2 - Prob. 13.2BCQCh. 13.2 - Prob. 13.2CCQCh. 13.3 - What does MM Proposition I state?Ch. 13.3 - Prob. 13.3BCQCh. 13.3 - Prob. 13.3CCQCh. 13.4 - Prob. 13.4ACQCh. 13.4 - Prob. 13.4BCQ
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