Nirwawi Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered

plan (Plan II). Under Plan I, Nirwawi would have 265, 500 shared of stock outstanding. Under Plan II,

there would be 185,000 shares of stock outstanding and $2.8 million in debt outstanding. The interest

rate on the debt is 10 percent and there are no taxes.

(a) What is the break-even EBIT?

(b) Prepare analytical income statement that proves Earning Per Share (EPS) will be the same

regardless of which plan chosen at the EBIT level found in part (a) above.

(c) Prepare EBIT-EPS analysis chart for this situation

(d) If EBIT is $750,000, which plan will result in the highest EPS?

Please provide clear calculation.

(e) If EBIT is $1,500,000, which plan will result in the highest EPS?