Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I), and a levered plan

Question:

Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I), and a levered plan (Plan II). Under Plan I, Kyle would have 700,000 shares of stock outstanding. Under Plan II, there would by 450,000 shares of stock outstanding and $6 million in debt outstanding. The interest rate on the debt is 10%, and there are no taxes.

(a) If EBIT is $1.3 million, which plan will result in the higher EPS?

(b) If EBIT is $2.8 million, which plan will result in the higher EPS?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...