Question: Answer #2 only!!! 1. Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levered plan (Plan II). Under Plan

Answer #2 only!!! Answer #2 only!!! 1. Round Hammer is comparing two different capital structures:

1. 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%, 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? 2. In Problem 1, use M \& M Proposition I to find the price per share of equity under each of the two proposed plans. What is the value of the firm

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