DAR 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 195, 000 of stock outstanding. Under Plan II there would be 140, 000 shares of stock outstanding and $1, 787, 500 in debt outstanding. The interest rate on the debt is 8 percent and there no taxes.

(a). If EBIT is $400, 000 which plan will result in the higher EPS?

(b). If EBIT is $600, 000 which plan will result in the higher EPS?

(c). What is the break-even EBIT ?