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Finance: Capital structure.

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This part of the project is to analyze the following capital structure plans. You will use the EBIT-EPS analysis to evaluate the two plans. One plan is all equity and one has debt and equity.

Plan 1: All Equity
Plan
Shares of Equity - 80,000
Debt - 0
Cost of debt - 0
Interest Expense - 0
Tax Rate - 34%

Plan 2: Some Debt
Plan
Shares of Equity - 50,000
Debt - $2,000,000
Cost of Debt - 12%
Interest Expense - $240,000
Tax Rate - 34%

1. Determine the EBIT indifference point
2. Discuss the implications of EBIT above and below this point

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Solution Summary

The problem deals with assessing the capital structure of provided information.

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ANALYSIS OF CAPITAL STRUCTURE

This part of the project is to analyze the following capital structure plans. You will use the EBIT-EPS analysis to evaluate the two plans. One plan is all equity and one has debt and equity.

Plan 1: All Equity
Plan
Shares of Equity - 80,000
Debt - 0
Cost of debt - 0
Interest Expense - 0
Tax Rate - 34%

Plan 2: Some Debt
Plan
Shares of ...

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  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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