Sunban Corp. is comparing two different capital structures. Plan A would result in 1210 shares of stock and $18150 in debt. Plan B would
result in 990 shares of stock and $30250 in debt. The interest rate on the debt is 11 percent.
(a)Ignoring taxes compare both of these plans to an all-equity plan assuming that EBIT will be $11000. The all-equity plan would result in
1540 shares of stock outstanding. Plan A has an EPS of $7.44 Plan B has an EPS of $7.75 and All-Equity Plan
has an EPS of $7.14.
(b) In part (a) the break-even levels of EBIT for Plans A and B are $9317 and $9317 respectively as compared to that for an all-equity plan.
(round to 2 decimals)
(c). Ignoring tasex EPS will be identical for Plans A and B when their EBITs are each $9317. (Round to nearest whole dollar)
(d) Repeat parts (a) (b) and (c) assuming that the corporate tax rate is 39 percent.
(i) EPSs for Plans A B and all-equity are $ _____ $ _____ and $ _____ respectively. (round to 2 decimal places)
(ii) Break-even EBITs for Plans A and B compared to an all-equity plan are $ _____ and $ _____ respectively (round to nearest whole
(iii) Break-even EBIT for Plan A versus Plan B: $ _____. (round to nearest whole dollar)