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.

questions

1. if the EBIT is $600,000 which plan result in the higher EPS?

2. What is the break even EBIT for the two plans?