Question
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 195,000 shares of stock outstanding. Under Plan II, there would be 145,000 shares of stock outstanding and $2.9 million in debt outstanding. The interest rate on the debt is 7 percent, and there are no taxes. If EBIT is $475,000, what is the EPS for each plan? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. If EBIT is $725,000, what is the EPS for each plan? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. What is the break-even EBIT? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.
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