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 150,000 shares of stock outstanding. Under Plan II, there would be 100,000 shares of stock outstanding and $1.2 million in debt outstanding. The interest rate on the debt is 5 percent, and there are no taxes.
a. If EBIT is $300,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e. g., 32.16.)
b. If EBIT is $550,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e. g., 32.16.)
c. What is the break-even EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars
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Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levere...
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