Coldstream Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of stock and $100,000 in debt. Plan II would result in 5,000 shares of stock and $200,000 in debt....

Coldstream Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of stock and $100,000 in debt. Plan II would result in 5,000 shares of stock and $200,000 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 $60,000. The all-equity plan would result in 15,000 shares of stock outstanding. What is the EPS for each of these plans?(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

b.In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan?(Do not round intermediate calculations.)

c.Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II?(Do not round intermediate calculations.)


EBIT           $


d-1Assuming that the corporate tax rate is 40 percent, what is the EPS of the firm?(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

d-2Assuming that the corporate tax rate is 40 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan?(Do not round intermediate calculations.)

d-3Assuming that the corporate tax rate is 40 percent, at what level of EBIT will EPS be identical for Plans I and II?(Do not round intermediate calculations.)


EBIT           $