Question: CASE 3 (40 points) Musa Corporation is comparing two different capital structures: An all-equity plan (Plan 1) and a levered plan (Plan 11). Under Plan

CASE 3 (40 points) Musa Corporation is comparing two different capital

CASE 3 (40 points) Musa Corporation is comparing two different capital structures: An all-equity plan (Plan 1) and a levered plan (Plan 11). 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 1,925,000 in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes. Instructions: 1. Calculate EPS for both plans if EBIT is 400,000. Which plan will result in the higher EPS? (10 points) 2. Calculate EPS for both plans if EBIT is 600,000. Which plan will result in the higher EPS? (10 points) 3. Calculate break-even EBIT. (10 points) 4. Explain the effect of financial leverage. (10 points)

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