Question 5 Yee Soon Berhad is comparing two different capital structure, an all equity plan (plan 1) and a levered plan (plan 2). Under plan 1, Yee Soon Berhad would have 255,000 shares of stock outstanding. Under plan 2, there would be 200,000 shares of stock outstanding and RM 2.9 million in debt outstanding. The interest rate on the debt is 10 percent and there was 30 taxes rate. Compute the following:

(i) If EBIT RM 900,000, which plan will result in higher EPS? (ii) If EBIT RM 1.8 million, which plan will result in higher EPS? (iii) Calculate the break-even EBIT.

Question 6 OPI Berhad is comparing two different capital structures, an all equity plan (plan 1) and a levered plan ( plan 2). Under plan 1, OPI Berhad would have 295,000 shares of stock outstanding. Under plan 2, there would be 205,000 shares of stock outstanding and RM 3 million in debt outstanding. The interest rate on the debt is 11 percent and tax rate is 40 percent.

i. If EBIT is RM 800,000, which plan will result in higher EPS? (2 marks)

ii. If EBIT is RM1.6 million, which plan will result in higher EPS? (2 marks)

iii. What is the break-even EBIT? (3 marks)