Kolby Corp. is comparing two different capital structures.

Plan I would result in 4,500 shares of stock and $37,440 in debt.

Plan II would result in 3,800 shares of stock and $66,560 in debt. The interest rate on the debt is 10 percent.

a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $20,000. The all-equity plan would result in 5,000 shares of stock outstanding. Which of the three plans has the highest EPS? The lowest?

b. In part (a) what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? Is one higher than the other? Why?

c. Ignoring taxes, when will EPS be identical for Plans I and II?

d. Repeat parts (a), (b), and (c) assuming that the corporate tax rate is 34 percent. What are the break-even levels of EBIT?"