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19 May, 04:33

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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  1. 19 May, 05:02
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    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
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