Question: DAR is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have

DAR is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 195,000 shares of stock outstanding. Under Plan n, there would be 140,000 shares of stock outstanding and $1,787,500 in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.

a. If EBIT is $400,000, which plan will result in the higher EPS?

b. If EBIT is $600,000, which plan will result in the higher EPS?

c. What is the break-even EBIT?

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