DAR Corporation is comparing two different capital structures: an all-equity pla
ID: 2763967 • Letter: D
Question
DAR 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 195,000 shares of stock outstanding. Under Plan II, there would be 145,000 shares of stock outstanding and $2.1 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.
If EBIT is $550,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
If EBIT is $800,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
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.)
DAR 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 195,000 shares of stock outstanding. Under Plan II, there would be 145,000 shares of stock outstanding and $2.1 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.
Explanation / Answer
Answer:a
Answer:b
Answer:c Breakeven EBIT
EBIT/195000=(EBIT-168000/145000)
145000EBIT=195000EBIT-3276000,0000
50000 EBIT=32760000000
EBIT=655200
Particulars Plan I Plan II EBIT 550000 550000 Less: interest 0 168000 EBT 550000 382000 No of shares outstanding 195000 145000 Eps 2.82 2.63Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.