Question
DAR 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
DAR 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 155,000 shares of stock outstanding. Under Plan II, there would be 105,000 shares of stock outstanding and $1.3 million in debt outstanding. The interest rate on the debt is 6 percent, and there are no taxes.
1) If EBIT is $200,000, what is the EPS for each plan?
EPS
Plan I $ ________
Plan II $ ________
2) If EBIT is $450,000, what is the EPS for each plan?
EPS
Plan I $ _______
Plan II $ _______
3) What is the break-even EBIT?
break-even EBIT $ _________
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