Uptown Construction Is Comparing Two Different Capital Structures

question 86

Multiple Choice

Uptown Construction is comparing two different capital structures.Plan I would result in 23,000 shares of stock and $320,000 in debt.Plan II would result in 17,000 shares of stock and $260,000 in debt.The interest rate on the debt is 10 percent.Ignoring taxes,EPS will be identical for Plans I and II when EBIT equals which one of the following?

• A)$8,550
• B)$9,000
• C)$9,600
• D)$10,400
• E)$10,750

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Definitions:

Finished Goods Inventory

Items that have completed the manufacturing process and are ready for sale.

Expected Sales

Projections or forecasts of the amount of goods or services a company plans to sell over a certain period, often used in budgeting and planning.

Stockouts

Situations where items are unavailable for sale or use due to insufficient inventory levels.

Budgeted Sales

It represents the expected amount of sales as planned for a future period, influenced by factors like past sales, market trends, and marketing strategies.