Stuck on requirement 3-4. Doing Algebra to solve for EBIT and getting EBIT=17485
ID: 2795418 • Letter: S
Question
Stuck on requirement 3-4. Doing Algebra to solve for EBIT and getting EBIT=174857.149. It's incorrect. Please show all calculations (posted this once already and answers were wrong). Thanks
Lisa Inc. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $306,000 in debt. Plan II would result in 12,150 shares of stock and $198,900 in debt. The interest rate on the debt is 10 percent.
Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $54,400. The all-equity plan would result in 18,000 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).)
Lisa Inc. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $306,000 in debt. Plan II would result in 12,150 shares of stock and $198,900 in debt. The interest rate on the debt is 10 percent.
Requirement 3: lgnoring taxes, at what level of EBIT will EPS be identical for Plans I and Il? (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 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 Il 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 112 (Do not round intermediate calculations.) EBITExplanation / Answer
Requirement - 3
(EBIT - 30600) / 9000 = (EBIT - 19890) / 12150
EBIT - 30600 = 9/12.150 EBIT - 14733.33
3.150/12.150 EBIT = 15867
EBIT = 15867*12.150/3.150 = 61200....................Final answer
Note : You can check accuracy of this answer by substituting in the equations..... we have same EPS 3.4 for each of the plan -1 and plan - 2
REQUIREMENT - 4
(a)
Plan - 1 ......... EPS = (EBIT - I ) ( 1 - Tax rate) / Number of shares
= (54400 - 30600) ( 0.68) / 9000 = 1.80 per share ................final answer
Plan - 2 ........ = (54400 - 19890) (0.68) / 12150 = 1.93 per share ...........final answer
All Equity plan = (54400 - 0) (0.68) / 18000 = 2.06 per share .............final answer
(b)
Plan - 1 and all equity
(EBIT - 30600) ( 0.68) / 9000 = (EBIT )(0.68) /18000
(EBIT - 30600) 18000 / 9000 = (EBIT )
2 EBIT - 61200 = EBIT
EBIT = 61200...........................Final answer
(c)
Plan - 2 and All equity
(EBIT - 19890) (0.68) / 12150 = (EBIT )(0.68) /18000
(EBIT - 19890) 18000 / 12150 = (EBIT )
18/12.15 EBIT - 29466.67 = EBIT
5.85/12.15 EBIT = 29466.67
EBIT = 61200..........................Final answer
(d)
(EBIT - 30600) ( 0.68) / 9000 = (EBIT - 19890) (0.68) / 12150
(EBIT - 30600) 12150 / 9000 = (EBIT - 19890)
12.15 / 9 EBIT - 41310 = EBIT - 19890
3.15/9 EBIT = 21420
EBIT = 61200..........................Final answer