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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
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 150,000 shares of stock outstanding. Under Plan II, there would be 100,000 shares of stock outstanding and $1.20 million in debt outstanding. The interest rate on the debt is 5 percent and there are no taxes. a. If EBIT is $300,000, 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)) b. If EBIT is $550,000, 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)) 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.)
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