Haskell Corp. is comparing two different capital structures. Plan I would result in 12,000 shares of stock and $100,000 in debt. Plan II would result in 4,000 shares of stock and $200,000 in debt. The interest rate on the debt is 8 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 1:

PLAN 2:

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?

EBIT

PLAN 1 AND ALL EQUITY:

PLAN 2 AND ALL EQUITY:

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

EBIT:

D-1. Assuming that the corporate tax rate is 40 percent, what is the EPS of the firm?

PLAN 1:

PLAN 2:

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 1 AND ALL EQUITY:

PLAN 2 AND ALL EQUITY:

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

EBIT: