Kyle Corporation is comparing two different capital structures, an all-equity pl
ID: 2751207 • 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 775,000 shares of stock outstanding. Under Plan II, there would be 525,000 shares of stock outstanding and $9.75 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes.
Assume that EBIT is $2.8 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
Assume that EBIT is $3.3 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).)
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).)
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 775,000 shares of stock outstanding. Under Plan II, there would be 525,000 shares of stock outstanding and $9.75 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes.
Explanation / Answer
Break-Even EBIT 682500 $ (for Plan II)
Workings
4.03
Requirement I EPS Plan I 3.61 $ Plan II 4.03 $Related Questions
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