Gabe's Market Is Comparing Two Different Capital Structures

question 39

Multiple Choice

Gabe's Market is comparing two different capital structures.Plan I would result in 15,000 shares of stock and $210,000 in debt.Plan II would result in 13,000 shares of stock and $252,000 in debt.The interest rate on the debt is 8 percent.Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $52,000.The all-equity plan would result in 25,000 shares of stock outstanding.Of the three plans, the firm will have the highest EPS with _____ and the lowest EPS with ____.

• A)Plan I; Plan II
• B)Plan II; the all-equity plan
• C)Plan II; Plan I
• D)Plan I; the all-equity plan
• E)the all-equity plan; Plan I

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Definitions:

Base of Support

The area beneath an object or person that includes every point of contact that the object or person makes with the supporting surface, essential for stability.

Drawsheets

Small bed linens placed crosswise over the middle of the bottom sheet to assist in repositioning or lifting a patient in bed.

Position

The way in which someone or something is placed or arranged in relation to its surroundings.

Direction of Movement

Refers to the course along which someone or something moves, which can be described in terms of direction (such as north, south, forward, backward).