Taiyuan Coal Gasification Ltd is comparing two different capital structures. Plan I would result in 1.62 billion shares of equity and 798 million yuan in debt. Plan II would result in 1 billion shares of equity and 2.1 billion yuan in debt. The interest rate on the debt is 11 per cent.

(a) Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be 370 million yuan. The all-equity plan would result in 2 billion shares of equity outstanding. Which of the three plans has the highest EPS? The lowest?

(b) In part

(a) what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? Is one higher than the other? Why?

(c) Ignoring taxes, when will EPS be identical for Plans I and II?

(d) Repeat parts (a), (b), and

(c) assuming that the corporate tax rate is 25 per cent. Are the break-even levels of EBIT different from before? Why or why not?