Question
I HAVE THE FOLLOWING QUESTION AND ANSWER BUT AM REALLY LOST ON THE STEPS TO GET THE ANSWER, IF SOMEONE COULD BREAK IT DOWN STEP
I HAVE THE FOLLOWING QUESTION AND ANSWER BUT AM REALLY LOST ON THE STEPS TO GET THE ANSWER, IF SOMEONE COULD BREAK IT DOWN STEP BY STEP.
Blue Inc is comparing two different capital structures. Plan I is an all equity plan and Plan II is a levered plan. Under Plan I Blue Inc would have 450,000 shares outstanding. Under Plan II there would be 180,000 shares outstanding and 4,500,000 in debt. The interest rate on the debt would be 8%. The tax rate would be 30%. What would be the EPS at the break-even level of EBIT
a) $1.33
b) $1.50
c) $0.93
d) $1.11
e) None of the above
X/450K = (X ($4.5M*.08*.7))/180K
X = $420,000
EPS = X/450,000 = .933
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started