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Cooke Co. is comparing two different capital structures. Plan I would result in 8,000 shares of stock and $456,000 in debt. Plan II would result in 13,700 shares of stock and $239,400 in debt. The

Cooke Co. is comparing two different capital structures. Plan I would result in 8,000 shares of stock and $456,000 in debt. Plan II would result in 13,700 shares of stock and $239,400 in debt. The interest rate on the debt is 11 percent.

Requirement 1:

Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $54,800. The all-equity plan would result in 20,000 shares of stock outstanding. Compute the EPS for each plan. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

 

  EPS
Plan I $
Plan II $
All-equity plan $
 
Requirement 2:
(a)

In Requirement (1), what is the break-even level of EBIT for Plan I as compared to that for an all-equity plan? (Do not round intermediate calculations.)

EBIT $
(b)

In Requirement (1), what is the break-even level of EBIT for Plan II as compared to that for an all-equity plan? (Do not round intermediate calculations.)

EBIT $
 
Requirement 3:

Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.)

EBIT $
Requirement 4:
Assume the corporate tax rate is 32 percent.
(a)

Compute the EPS for each plan. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

  EPS
Plan I $
Plan II $
All-equity plan $
 

 

(b)

What is the break-even level of EBIT for Plan I as compared to that for an all-equity plan? (Do not round intermediate calculations.)

EBIT $
(c)

What is the break-even level of EBIT for Plan II as compared to that for an all-equity plan? (Do not round intermediate calculations.)

EBIT $
(d)

At what level of EBIT will EPS be identical for Plans I and II? (Do not round intermediate calculations.)

EBIT $

Aug 08 2021 View more View Less

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