Question
Problem 16-4 Break-Even EBIT Rolston Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan
Problem 16-4 Break-Even EBIT
Rolston Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Rolston would have 175,000 shares of stock outstanding. Under Plan II, there would be 125,000 shares of stock outstanding and $2.50 million in debt outstanding. The interest rate on the debt is 8 percent and there are no taxes. |
a. | If EBIT is $650,000, what is the EPS for each plan? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
EPS | |
Plan I | $ |
Plan II | $ |
b. | If EBIT is $900,000, what is the EPS for each plan? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
EPS | |
Plan I | $ |
Plan II | $ |
c. | What is the break-even EBIT? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations.) |
Break-even EBIT | $ |
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