Question
P16-4 Break-Even EBIT [LO1] James Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan
P16-4 Break-Even EBIT [LO1]
James 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 160,000 shares of stock outstanding. Under Plan II, there would be 80,000 shares of stock outstanding and $2.8 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes. |
Required: |
(a) | If EBIT is $350,000, Plan I's EPS is $ while Plan II's EPS is $. (Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16)) |
(b) | If EBIT is $500,000, Plan I's EPS is $ and Plan II's EPS is $. (Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16)) |
(c) | The break-even EBIT is $. (Do not include the dollar sign ($). Round your answer to the nearest whole dollar amount. (e.g., 32.)) |
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