Gabe's Market Is Comparing Two Different Capital Structures

question 5

Multiple Choice

Gabe's Market is comparing two different capital structures.Plan I would result in 11,000 shares of stock and $225,000 in debt.Plan II would result in 14,000 shares of stock and $150,000 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 $45,000.The all-equity plan would result in 20,000 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 I; all-equity plan
• C)Plan II; Plan I
• D)Plan II; all-equity plan
• E)all-equity plan; Plan I

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Definitions:

Estrogen Levels

The concentration of estrogen, a primary female sex hormone, in the body which affects various functions and developmental processes.

Prostaglandins

A collection of lipid-based substances that possess a wide range of effects similar to hormones in animals.

Seminal Vesicles

(1) In mammals, glandular sacs that secrete a component of semen (seminal fluid). (2) In some invertebrates, structures that store sperm.

Spermatogenesis

The process by which spermatozoa are produced from male primordial germ cells by way of mitosis and meiosis, occurring in the testes.