13.3

Kyle 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 780,000 shares of stock outstanding. Under Plan II, there would be 530,000 shares of stock outstanding and $10 million in debt outstanding. The interest rate on the debt is 10 percent, and there are no taxes.

a. Assume that EBIT is $2.9 million. Compute the EPS for both Plan I and Plan II. (Do not round intermediate calculations and round your answers to 2 decimal places, 32.16.)

EPS Plan I: $

Plan II : $

b. Assume that EBIT is $3.4 million. Compute the EPS for both Plan I and Plan II. (Do not round intermediate calculations and round your answers to 2 decimal places, 32.16.)

	EPS
Plan I	$
Plan II	$
c. What is the break-even EBIT? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the nearest whole number, e.g., 32.) Break-even EBIT $