Break Even EBIT petty Corporation is comparing two different capital structure an all-equity plan (Plan I) and

Question:

Break Even EBIT petty Corporation is comparing two different capital structure an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Petty would have 200,000 shares of stock outstanding. Under Plan II, there would be 90,000 shares of stock outstanding and $1.5 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.

a. If EBIT is $150,000, which plan will result in the higher EPS?

b. If EBIT is $300,000, which plan will result in the higher EPS?

c. What is the break-even EBIT?

Capital Structure
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