Question: Galaxy Products is comparing two different capital structures, an all - equity plan ( Plan I ) and a levered plan ( Plan II )

Galaxy Products is comparing two different capital structures, an all-equity
plan (Plan I) and a levered plan (Plan II). Under Plan I, Galaxy would have
178,500 shares of stock outstanding. Under Plan II, there would be 71,400
shares of stock outstanding and $1.79 million in debt outstanding. The interest
rate on the debt is 10 percent and there are no taxes. The projected EBIT is
$280,000. Which capital structure plan would you prefer, if you were a
shareholder in the firm? Support your response with relevant computations.

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