Question: QUESTION 2 Plan 1 plan 2 Interest expense $25,000 $50,000 Preferred dividend $3,000 $1,500 Common shares outstanding 200,000 100,000 Tax rate = 40% a) What
QUESTION 2
Plan 1 plan 2
| Interest expense | $25,000 | $50,000 |
| Preferred dividend | $3,000 | $1,500 |
| Common shares outstanding | 200,000 | 100,000 |
Tax rate = 40%
a) What is the degree of financial leverage at a base level EBIT of $120,000 for both financing plans?
b) What is the EPS under Financing Plan 1, if the firm projects EBIT of $200,000?
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