3. Square Block Company 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 350,000 shares of stock outstanding. Under Plan II, there would be 225,000 shares of stock outstanding and $5 million in debt outstanding. The interest rate on the debt is 10 percent, and there are no taxes.

a. If EBIT is $1,000,000, which plan will result in the higher EPS?

b. If EBIT is $1,500,000, which plan will result in the higher EPS?

c. What is the break-even EBIT?