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Galaxy Products is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Galaxy would have
Galaxy Products is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Galaxy would have 178,500 shares of stock outstanding selling at $24. Under Plan II, there would be 71,400 shares of stock outstanding and $1.79 million in debt outstanding. The interest rate on the debt is 10% and there are no taxes. Say the company considers an all-equity plan (Plan 1) but does a stock split. The number of shares doubles to 357,000 shares and the stock price adjusts to $12. What is the break-even EBIT between the new plan I and plan Il? And what is the EPS of the new plan using the break-even EBIT
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