Ask Question
30 September, 20:12

Franklin Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 195,000 shares of stock outstanding. Under Plan II, there would be 145,000 shares of stock outstanding and $2.1 million in debt outstanding. The interest rate on the debt is 8 percent and there are no taxes. a. If EBIT is $550,000, what is the EPS for each plan?

+2
Answers (1)
  1. 30 September, 20:21
    0
    The EPS for Plan 1 and Plan 2 is 2.82 and 2.63 respectively

    Explanation:

    The formula to compute Earning Per Share is shown below:

    = (EBIT - Interest) : Number of outstanding shares

    For Plan I,

    EPS = $550,000 : 195,000

    = $2.82

    For Plan 2, the interest on debt would be

    = Outstanding Debt amount * rate of debt

    = $2,100,000 * 8%

    = $168,000

    So, EPS = ($550,000 - $168,000) : 145,000

    = $2.63

    Hence, the EPS for Plan 1 and Plan 2 is 2.82 and 2.63 respectively
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Franklin Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers