Kyle Corporation is comparing two different capital structures, an all-equity pl
ID: 2730085 • Letter: K
Question
Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Kyle would have 770,000 shares of stock outstanding. Under Plan II, there would be 520,000 shares of stock outstanding and $9.50 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.
Requirement 1:
Assume that EBIT is $2.7 million. Compute the EPS for both Plan I and Plan II. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32
EPS
Plan I $
Plan II $
Requirement 2:
Assume that EBIT is $3.2 million. Compute the EPS for both Plan I and Plan II. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
EPS
Plan I $
Plan II $
Explanation / Answer
Answer: Requirement 1:
Answer: Requirement 2:
Particulars Plan I Plan II EBIT 2700000 2700000 Less: interest 760000 EAT 2700000 1940000 No of shares outstanding 770000 520000 EPS 3.51 3.73Related Questions
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