Question
Foundation, Incorporated, is comparing two different capital structures: an all-equity plan (Plan 1) and a levered plan (Plan I). Under Plan I, the company would
Foundation, Incorporated, is comparing two different capital structures: an all-equity plan (Plan 1) and a levered plan (Plan I). Under Plan I, the company would have 145,000 shares of stock outstanding. Under Plan I, there would be 125,000 shares of stock outstanding and $716,000 in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.
a. If EBIT is $300,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b. If EBIT is $600,000, what is the EPS for each plan? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
c. What is the break-even EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)
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