Question: Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would

Round Hammer 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 200,000 shares of stock outstanding. Under Plan II, there would be 150,000 shares of stock outstanding and $2.2 million in debt outstanding. The interest rate on the debt is 5 percent, and there are no taxes.

a. If EBIT is $350,000, what is the EPS for each plan?

b. If EBIT IS $600,000, what is the EPS for each plan?

c. What is the break-even EBIT?

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