Question
Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would
Kyle Corporation 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 770,000 shares of stock outstanding. Under Plan II, there would be 520,000 shares of stock outstanding and $9.5 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes. a. Assume that EBIT is $2.7 million. Compute the EPS for both Plan I and Plan II. (Do not round intermediate calculations and round your answers to 2 decimal places, 32.16.) EPS Plan I $ Plan II $ b. Assume that EBIT is $3.2 million. Compute the EPS for both Plan I and Plan II. (Do not round intermediate calculations and round your answers to 2 decimal places, 32.16.) EPS Plan I $ Plan II $ c. What is the break-even EBIT? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the nearest whole number, e.g., 32.) Break-even EBIT $
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