Destin Corp. is comparing two different capital structures. Plan I would result in 12,000 shares of stock and $120,000 in debt. Plan II would result in 11,500 shares of stock and $140,000 in debt. The interest rate on the debt is 6 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $70,000. The all-equity plan would result in 15,000 shares of stock outstanding. What is the EPS for each of these plans? (Round your answers to 2 decimal places. (e. g., 32.16))

Question

Business

Diamond Lang

20 July, 13:46

Destin Corp. is comparing two different capital structures. Plan I would result in 12,000 shares of stock and $120,000 in debt. Plan II would result in 11,500 shares of stock and $140,000 in debt. The interest rate on the debt is 6 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $70,000. The all-equity plan would result in 15,000 shares of stock outstanding. What is the EPS for each of these plans? (Round your answers to 2 decimal places. (e. g., 32.16))

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Holly Sellers · Answer 1

Plan 1 = $40 per shares

Plan 2 = $40 per shares

Explanation:

We can therefore calculate the price as the value of shares repurchased divided by the number of shares repurchased.

Hence:

Plan I, the value per share will be:

P = $120,000 / (15,000 - 12,000 shares)

P=$120,000/$3,000

P = $40 per share

Plan II, the value per share will be:

P = $140,000 / (15,000 - 11,500 shares)

P=$140,000/$3,500

P = $40 per share

Therefore the EPS for each of these plans is Plan l = $40 per shares and Plan ll=$40 per shares