Haskell Corp. is comparing two different capital structures. Plan I would result in 15,000 shares of stock and $100,000 in debt. Plan II would result in 11,500 shares of stock and $170,000 in debt. The interest rate on the debt is 5 percent.

a.

Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $70,000. The all-equity plan would result in 20,000 shares of stock outstanding. What is the EPS for each of these plans?

EPS

Plan I

$

Plan II

$

All equity

b.

In part (a), what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan?

Plan I and all-equity	$
Plan II and all-equity	$

c.

Ignoring taxes, at what level of EBIT will EPS be identical for Plans I and II?

d-1

Assuming that the corporate tax rate is 40 percent, what is the EPS of the firm?

EPS

Plan I

$

Plan II

$

All equity

d-2

Assuming that the corporate tax rate is 40 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan?

Plan I and all-equity

$

Plan II and all-equity

d-3	Assuming that the corporate tax rate is 40 percent, when will EPS be identical for Plans I and II?