Keenan Corp is comparing two different capital structures. Plan I would result in 7,000 shares of stock and 160,000 in debt. Plan II would result in 5,000 shares of stock and 240,000 in debt. The Interest rate is 10 percent. Tax rate is 40 percent. 1. Compare both of these plans to an all-equity plan assuming that EBIT will be 39,000. The all-equity plan would result in 11,000 shares of stock outstanding. Which of the three plans has the highest EPS ? The Lowest ? 2. in part (1), 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?
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
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Keenan Corp is comparing two different capital structures. Plan I would result in 7,000 shares of stock and 160,000 in debt. Plan II would result in 5,000 shares of stock and 240,000 in debt. The Interest rate is 10 percent. Tax rate is 40 percent.
1. Compare both of these plans to an all-equity plan assuming that EBIT will be 39,000. The all-equity plan would result in 11,000 shares of stock outstanding. Which of the three plans has the highest EPS ? The Lowest ?
2. in part (1), 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?
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