Question: 1. Carter Corp is considering two different capital structures: an all equity plan (Plan 1) and a levered plan (Plan 2). Under plan 1 the

1. Carter Corp is considering two different capital structures: an all

1. Carter Corp is considering two different capital structures: an all equity plan (Plan 1) and a levered plan (Plan 2). Under plan 1 the company would have 205,000 shares of stock outstanding. Under plan 2 there would be 150,000 shares of stock outstanding and $1,987,500 in debt outstanding. The interest on the debt is 7 percent, and there are no taxes. If EBIT is $400,000, which plan will result in the higher EPS? Explain why. b. If EBIT is $600,000, which plan will result in the higher EPS. Explain why. a

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