Question: Problem 1: Break-Even EBIT Blake Corporation is comparing two different capital structures, an all equity plan, Plan I, and a levered plan, Plan II. Under

Problem 1:

Break-Even EBIT Blake Corporation is comparing two different capital structures, an all equity plan, Plan I, and a levered plan, Plan II. Under Plan I, the company would have 125,000 shares of stock outstanding. Under Plan II, there would be 90,000 shares of stock outstanding and $1,197,000 in debt outstanding. The interest rate on the debt is 7 percent and there are no taxes.

A: If EBIT is $250,000, which plan will result in the higher EPS?

B: If EBIT is $350,000, which plan will result in the higher EPS?

C: What is the break-even EBIT?

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