1. Charles Corporation is comparing two different capital structures: an all-equity plan (Plan A) and a levered plan (Plan B). Under Plan A, the company would have 160,000 shares of stock outstanding. Under Plan B, there would be 80,000 shares of stock outstanding and RM2.8 million in debt outstanding. The interest rate on debt is 8 percent, and there is no taxes.

Required:

1. If EBIT is RM350,000 , which plan will result in higher EPS? Comment your answer.

2. If EBIT is RM500,000 , which plan will result in higher EPS? Comment you answer.

3. What is the break-even EBIT?

(d) Using M&M Proposition I to find the price per share of equity under each of the two proposed plans. What is the value of the firm?