13 Break-even EBIT Hammerson plc is comparing two different capital structures: an all-equity plan (Plan I) and
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13 Break-even EBIT Hammerson plc is comparing two different capital structures: an all-equity plan
(Plan I) and a levered plan (Plan II). Under Plan I, Hammerson would have 712 million shares of equity outstanding. Under Plan II, there would be 475 million shares of equity outstanding and £1 billion in debt outstanding. The interest rate on the debt is 5 per cent and there are no taxes.
(a) If EBIT is £459 million, which plan will result in the higher EPS?
(b) If EBIT is £80 million, which plan will result in the higher EPS?
(c) What is the break-even EBIT?
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