Question: Answer the following questions based on the information provided in the table Plan 1 Plan 2 Interest Expense 30,000 55000 Preferred dividends 2,000 4,000 Common

Answer the following questions based on the information provided in the table

Plan 1 Plan 2
Interest Expense 30,000 55000
Preferred dividends 2,000 4,000
Common shares outstanding 150,000 150,000

  1. What is the degree of financial leverage at a base level EBIT of $120,000 for both financing plans? The firm has a 40 percent tax rate.
  2. What is the EPS for both Financing Plan 1 and Plan 2, if the firm projects EBIT of $250,000 and has a tax rate of 40 percent?

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