Question: Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Kyle would have

Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Kyle would have 795,000 shares of stock outstanding. Under Plan II, there would be 545,000 shares of stock outstanding and $10.75 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes.

Requirement 1:

(a)

Assume that EBIT is $3.2 million, compute the EPS for Plan I.

	$5.41
	$4.03
	$8.52
	$4.65
	$4.49

(b)

Assume that EBIT is $3.2 million, compute the EPS for Plan II.

	$4.65
	$5.41
	$8.52
	$4.49
	$4.03

Requirement 2:

(a)

Assume that EBIT is $3.7 million, compute the EPS for Plan I.

	$4.03
	$4.49
	$5.41
	$4.65
	$5.24

(b)

Assume that EBIT is $3.7 million, compute the EPS for Plan II.

	$4.65
	$4.03
	$4.49
	$5.24
	$5.41

Requirement 3:

What is the break-even EBIT?

	$2,947,500
	$2,392,950
	$3,262,959
	$536,157
	$3,200,000

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