Question: Foundation, Inc. is comparing two different capital structures: (1) Plan I - all-equity plan; (2) Plan II a levered plan. Under Plan I, the company

Foundation, Inc. is comparing two different capital structures: (1) Plan I - all-equity plan; (2) Plan II a levered plan. Under Plan I, the company would have 145,000 shares of stock outstanding. Under Plan II, threr would be 125,000 shares of stocks outstanding and $716,000 in debt outstanding. The interest rate on the debt is 8%, and there are no taxes.

a. If EBIT is $300,000, which plan will result in a higher EPS?

b. If EBIT is $600,000, which plan will result in a higher EPS?

c. What is the break-evem EBIT?

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