Question: Venus Corp. is comparing two (2) different capital structures: Plan 1 all equity plan Plan 2 - a leveraged plan (debt/equity). Under plan 1, Venus
Venus Corp. is comparing two (2) different capital structures: Plan 1 all equity plan Plan 2 - a leveraged plan (debt/equity). Under plan 1, Venus Corp. would have 265,000 shares of stock outstanding Under plan 2, Venus Corp. there would be 185 000 shares of stock outstanding and $2.8 million in debt outstanding. The interest rate on the debt is 10% (no taxes) (include calculations) Required: a) If EBIT i $750 000, which plan will result in the higher EPS? b) If EBIT is $1,500,000, which plan will result in the higher EPS? c) What is the break-even EBIT between the two capital structures? (Hint Complete indifference analysis
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