Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levered plan
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Round Hammer 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 180,000 shares of stock outstanding. Under Plan II, there would be 130,000 shares of stock outstanding and $1.925 million 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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Related Book For
Fundamentals of Corporate Finance
ISBN: 978-1260153590
12th edition
Authors: Stephen M. Ross, Randolph W Westerfield, Robert R. Dockson, Bradford D Jordan
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