Question: Break Even EBIT and Leverage. Coldstream Corp. is comparing to two different capital structures. Plan I would result in 3,700 shares of stock and $13,700

Break Even EBIT and Leverage. Coldstream Corp. is comparing to two different capital structures. Plan I would result in 3,700 shares of stock and $13,700 in debt. Plan II would result in 3,100 shares of stock and $30,140 in debt. The interest rate on the debt is 7 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $7,600. The all-equity plan would result in 3,100 shares of stock outstanding. Which of these three plans has the highest EPS? The lowest? b. In part (a) what are the break-even levels of EBIT for each plan as compared to that for an all equity plan? Is one higher than the other?>Why? c. Ignoring taxes, when will EPS be identical for Plans I and II? d. Repeat parts (a), (b), and (c) assuming that the corporate tax rate is 40 percent. Are the break-even levels of EBIT different from before? Why or why not?

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