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Kolby Corp. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $60,000 in debt. Plan II would result in 5,000 shares of stock and $140,000 in debt. The interest rate on the debt is 10 percent. Assume that EBIT will be $60,000. An all-equity plan would result in 12,000 shares of stock outstanding. Ignore taxes. Assuming that the corporate tax rate is 40 percent, what is the EPS of the firm?Assuming 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? Assuming that the corporate tax rate is 40 percent, when will EPS be identical for Plans I and II?
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Kolby Corp. is comparing two different capital structures. Plan I would result in 9,000 shares of st...
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