Kuchar Corporation is comparing two different capital structures, an all-equity plan, Plan I, and a levered plan,
Question:
Kuchar Corporation 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 125,000 shares of stock outstanding. Under Plan II, there would be 90,000 shares of stock outstanding and $1,197,000 in debt outstanding. The interest rate on the debt is 7 percent and there are no taxes.
a. If EBIT is $250,000, which plan will result in the higher EPS?
b. If EBIT is $350,000, which plan will result in the higher EPS?
c. What is the break-even EBIT?
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Step by Step Answer:
a Under Plan I the unlevered company net income is the same as EBIT with no corporate tax ...View the full answer
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Gabriela Rosalía Castro
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Related Book For 
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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