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Foundation, Incorporated, is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would
Foundation, Incorporated, 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 190,000 shares of stock outstanding. Under Plan II, there would be 140,000 shares of stock outstanding and $2 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes. If EBIT is $625,000, what is the EPS for each plan? If EBIT is $875,000, what is the EPS for each plan? What is the break-even EBIT?
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