Kyle Corporation is comparing two different capital structures, an all-equity pl
ID: 2762225 • 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 755,000 shares of stock outstanding. Under Plan II, there would be 505,000 shares of stock outstanding and $8.75 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes.
Assume that EBIT is $2.4 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 $2.9 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 755,000 shares of stock outstanding. Under Plan II, there would be 505,000 shares of stock outstanding and $8.75 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes.
Explanation / Answer
1./
PLAN 1
PLAN 2
2./
PLAN 1
PLAN 2
3./
BREAK EVEN EBIT
EBIT / 755000 = (EBIT - $612500) / 505000
505000 EBIT = 755000 EBIT - $462437500000
250000 EBIT = $462437500000
EBIT = $462437500000 / 250000
= $1849750
EBIT $2400000 LESS INTEREST NIL EBT $2400000 NUMBER OF SHARE 755000 EPS ($2400000 / 755000) $3.18Related Questions
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