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

Byrd Corporation 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 365,000 shares of stock outstanding. Under Plan II, there would be 245,000 shares of stock outstanding and $4.56 million in debt outstanding. The interest rate on the debt is 10 percent and there are no taxes.

a. If EBIT is $1.25 million, which plan will result in the higher EPS?

b. If EBIT is $1.75 million, which plan will result in the higher EPS?

c. What is the break-even EBIT?

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a Under Plan I the unlevered company net income is the same as EBIT with no corporate tax The E... View full answer

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