question archive Bellwood Corp
Bellwood Corp
Subject:AccountingPrice: Bought3
Bellwood Corp. is comparing two different capital structures. Plan I would result in 13,000 shares of stock and $151,500 in debt. Plan 11 would result in 10,000 shares of stock and $303,000 in debt. The interest rate on the debt is 10 percent. a) Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $90,000. The all-equity plan would result in 16,000 shares of stock outstanding. Which of the three plans has the highest EPS? The lowest? [3%] b) In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all- equity plan? Is one higher than the other? Why? [4%] c) Ignoring taxes, when will EPS be identical for Plans I and 11?
