Question: Moe Corporation is comparing the following two different capital structures: Plan I (All-equity or No Debt Plan) Plan II (Levered Plan or Plan with debt)

Moe Corporation is comparing the following two different capital structures:

Plan I (All-equity or No Debt Plan)

Plan II (Levered Plan or Plan with debt)

Shares outstanding = 400,000 shares

Debt = $0

Shares outstanding = 300,000 shares

Debt = $4 million @ interest rate = 8%

Calculate the EPS under each plan if EBIT is $1,400,000.

a.

$3.5; $3.6
b.

$2.08; $2.5
c.

$2.08; $3.6
d.

$3.5; $2.5

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