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Petty Corporation is comparing 2 different capital structures: Plan 1 an all-equity plan and Plan 2 a levered plan. Under Plan 1, Petty would have
Petty Corporation is comparing 2 different capital structures: Plan 1 an all-equity plan and Plan 2 a levered plan. Under Plan 1, Petty would have 100,000 shares of stock outstanding and under Plan 2 there would be 100,000 shares of stock outstanding an $2.5 Million in debt outstanding. The interest rate on the debt is 8 %, and there are no taxes.
If EBIT is $400,000, What is the EPS under Plan 1 and then Plan 2?
Select one:
a. Plan 1=1.50; Plan 2=2.00
b. Plan 1= 4.00; Plan 2=2.00
c. Plan 1=1.50; Plan 2=3.33
d. Plan 1= 2.00; Plan 2=1.50
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