Vanier corporation is comparing two different capital structures: an all-equity plan (plan 1) and a levered plan (plan 2). Under plan 1, the company would have 195000 shares of stocks outstanding. Under plan 2, there would be 140000 shares of stock outstanding and 1787500 in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.

a) IF EBIT is 400000 which plan will result in the higher EPS?

b)IF EBIT is 600000. which plan will result in a higher EPS?

c) What is the break-even EBIT?

Answer rating: 100% (QA)

Plan 1 EPSEBITShares outstanding 4... View the full answer