Question
Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would
Round Hammer 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 200,000 shares of stock outstanding. Under Plan II, there would be 150,000 shares of stock outstanding and $2.2 million in debt outstanding. The interest rate on the debt is 5 percent, and there are no taxes.
a.If EBIT is $350,000, what is the EPS for each plan?(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b.If EBIT is $600,000, what is the EPS for each plan?(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)c.What is the break-even EBIT?(Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)
a. Plan I EPS
Plan II EPS
b. Plan I EPS
Plan II EPS
c. Break-even EBIT
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